The Sports Authority, Inc. History

Address:

3383 North State Road 7
Fort Lauderdale, Florida 33319
U.S.A.

Telephone: (305) 735-1701
Fax: (305) 484-0837

Public Company
Incorporated: 1987
Employees: 9,000
Sales: $1.04 billion (1995)
Stock Exchanges: New York
SICs: 5941 Sporting Goods & Bicycle Shops

Company Perspectives:

Our mission is simple--create a shopping experience establishing The Sports Authority as the first choice for the sports, leisure and recreational customer. Our strategy to achieve this goal is offer our customers: an extensive selection of quality brand name merchandise; powerfully merchandised megastores that provide ease of shopping; competitive prices that create value; premium customer service and product knowledge; and convenient locations throughout our markets.

Company History:

The Sports Authority, Inc. is the world's largest full-line sporting goods retailer. From its 136 stores, which are located in 26 states and in Canada, the company sells sporting goods in over 1,200 merchandise categories. Its large format stores, virtually all of which exceed 40,000 square feet, carry more than 900 brand names, including Adidas, Asics, Coleman, K2, Nike, Prince, and Starter. Over half of the company's annual revenue is generated from the sale of hard lines&mdash≡uipment for team sports, fitness, hunting, fishing, camping, golf, racquet sports, cycling, water sports, marine, snow sports, and general merchandise. Soft lines&mdash⟩parel and footwear, its most profitable product--make up the rest. The first comprehensive sporting goods store to top $1 billion in sales, The Sports Authority competes in a $35 billion market that includes traditional and specialty sporting goods retailers, as well as large format sporting goods retailers and mass merchandisers.

Early History

The idea behind the company that would grow to become the nation's largest sporting goods chain in just five years came from Jack Smith, a former CEO of Herman's World of Sports, who opened the first Sports Authority store in Fort Lauderdale, Florida, in 1987. While at Herman's, Smith tried unsuccessfully to bring the same comprehensive megastore concept that had fueled the tremendous growth of Toys "R" Us and Home Depot to the sporting goods industry. With the backing of a group of venture capitalists, he got another chance and set out to build his own sporting goods giant. By 1990 he was running eight megastores, mainly in Florida, and while his company had yet to turn a profit, the then 55-year-old fitness enthusiast was convinced he could make the idea work if he could obtain the capital to fund full-scale expansion.

Joseph Antonini, then chairman of Kmart Corporation, shared Smith's confidence and acquired the sporting goods minichain for $75 million in March of that same year. With the financial backing of the multi-billion-dollar retail giant, Smith now had the resources he needed to implement his plans fully and begin an expansion program that would see The Sports Authority grow to 100 stores four years later. In 1990, the company more than doubled its size to 19 stores. While such rapid growth was accompanied by proportional gains in total revenue, it did not yet translate well onto the balance sheet. At the end of the fiscal year, the company reported a loss of $3.3 million, its fourth consecutive year in the red.

Although the company was unable to realize a profit during these developmental years, it succeeded in building the technological infrastructure needed to support more important long-term growth. At the expense of short-term profits, the experienced sporting goods executive had the foresight to invest heavily in state-of-the-art computer systems that closely monitored inventory. Not only would this give Sports Authority an early technological edge on the competition; it would enable the company to keep its shelves stocked without the use of a distribution facility. The accuracy and availability of information housed in the company's extensive computer system would allow vendors to ship directly to individual stores.

Early 1990s Growth

In 1991, as revenue rose to $240 million, the company enjoyed its first profitable year of operation, reporting an operating income of $3.3 million. With financial support from Kmart, it was also able to again more than double the size of its operations, building 11 new stores and taking over six existing stores. The company's 36 stores now occupied a total of more than 1.5 million square feet. Although the company at this time had not yet won over many of the major brand names in the industry, such as Nike and Starter, its strong growth suggested that Smith's version of the sporting goods superstore was quickly gaining in popularity. One of the key factors to its success was its ability to combine the best features of the small specialty sporting goods store and the large discount store. While other companies preceded Sports Authority in introducing the public to the idea of a sporting goods megastore, their stores quickly gained a reputation for being warehouse type operations that offered poor service and an unpleasant shopping environment. What Smith contributed to the field were significant improvements on both counts. He made merchandise displays more attractive, investing in high-quality displays that added to the shopping experience, and staffed his stores with enough well-trained employees to give customers the type of service they might receive at a specialty store. In short, he was able to make the "big box" of the superstore workable.

The company's rapid expansion program unfolded at an even faster rate over the next two years. In 1992, sales climbed more than 70 percent while income more than tripled as 20 new stores were opened. The following year, sales increased 50 percent as earnings doubled and 24 new stores entered the fold. Again, Sports Authority followed its simple, time-honored retailing philosophy, described by Smith in Discount Store News as "the simple blocking and tackling of retail": keeping shelves stocked, keeping stores clean, and providing good service. Patterned after category killers such as Home Depot and Toys "R" Us, the company did not attempt to beat the competition by undercutting their prices; instead, it tried to win customers over with shelves so densely stocked that virtually anyone would have a difficult time leaving the store empty-handed. The company's receipts at the cash register, in keeping with its policy of "consistent everyday fair pricing," would likely fall somewhere between those of specialty sporting goods retailers and mass merchandisers. And while the company tried to keep its prices comparable to other sporting goods superstores, it did not--unlike many of its competitors--take temporary price reductions to promote product sales. It simply relied on the product quality strength of its ever-increasing stable of brand names.

By the start of 1993, Sports Authority had become less dependent on Kmart and had gained enough financial strength to fund the opening of 10 new stores on its own during the first six months of the year. As intense competition from Wal-Mart threatened Kmart's future ability to support the expansion of its top subsidiaries, Sports Authority's increasing sense of autonomy became an even more important factor. At this time, the company also stepped up its bid to increase its share and presence by opening up multiple stores in major markets. This growth strategy--known as "cannibalizing" because new stores sometimes "eat up" sales from existing stores in an attempt to capture a dominant overall market share&mdash-abled the company to take advantage of economies of scale in advertising and promotion in Florida locations such as Dade and Broward counties, where it had 10 stores by the end of the year. The company also attempted to make a strong entrance in major markets such as Seattle and New York City, where it opened 15 stores.

Initial Public Offering

Just as Sports Authority was fast becoming the largest sporting goods store in the nation, its parent company, Kmart, the second largest retail company in the United States, struggled in the face of increasing competition from Wal-Mart, Target, and other top retailers. In August 1994, following a record $974 million loss the previous year, Kmart made the decision to take its three most successful specialty shops public to fund the renovation of its older stores and the introduction of Super Kmart Centers. Sports Authority, along with OfficeMax and Borders-Walden bookstores, were subsequently approved for initial public offerings with the hope of raising more than $1 billion. Kmart's loss, however, proved to be a boon for Smith and Sports Authority. On November 18, 71 percent of the company was sold to the public for around $270 million. Although Sports Authority had always essentially run its own business, its growth would no longer be hindered by the retail giant.

That same year Sports Authority opened its 100th store as it recorded another record-breaking performance: sales increased to $838 million, up 38 percent from the previous year, and earnings rose to $16.9 million, a 33 percent jump. While growing at such a rapid rate, the company managed to maintain a strong balance sheet and cash flow. With equity in excess of $250 million, cash and cash equivalents of around $37 million, and--most notably--no long-term debt, the company placed itself in a favorable position to continue its aggressive national expansion program, focusing its growth on the New York metropolitan area, where it opened six stores, and Chicago, where it opened four. In addition to opening 12 stores in existing markets, the company entered several new markets, including Anchorage, Seattle/Tacoma, Sacramento, and Tucson.

The Sports Authority complemented its efforts toward dominating the domestic sporting goods market by also launching an international program in 1994. Its first movement outside of the United States' borders consisted of a plan to open five new stores in Toronto. Not only did Canada offer the company a market with characteristics and dynamics similar to those in the U.S., but it also featured an easily accessible supply line from existing vendors, most of whom already had Canadian operations. That same year the company also laid the groundwork for overseas expansion, signing a joint venture agreement with JUSCO Co., Ltd, to operate Sports Authority stores in Japan. The country's third-largest retailer, JUSCO brought to the table a wealth of experience in property management and retail sight selection as well as broad experience in working with other western based retailers. With an estimated size of $16 billion, the Japanese sporting goods market presented the opportunity to tap a densely populated market with high disposable income, a strong attraction to branded products, and a commitment to sports and leisure activities.

Perhaps the most visible sign of the company's arrival, though, was the addition of one of the most popular vendors in the industry, Nike. After seven years of refusing to sell to The Sports Authority, the footwear and apparel giant began selling to the fast-growing chain, paving the way for a number of upscale brands to enter the fold. Starter apparel, Timberland, and Teva quickly followed suit, adding significantly to the company's bid to offer its customers the most comprehensive array of products in the industry.

Breaking the Billion-Dollar Barrier:1995 and Beyond

In its first full year of operation as a publicly traded company, Sports Authority became the first full-line sporting goods retailer to top $1 billion in sales. The now 136-store chain also proved to its investors that such unprecedented growth did not come without a concomitant boost in earnings, which increased 32 percent. A number of strategic moves contributed to the record-breaking success of the company and provided a foundation for continued growth over the long run.

Although the company had long earned high marks for its extensive product line, its reputation for customer service had not been as strong. In an effort to set itself apart from other large-format sporting goods retailers and other mass merchandisers, Sports Authority launched a company-wide initiative to enhance customer service in each one of its stores. Known as TSA 2000, the new standard tried to address the most common complaint against the company: employees too busy stocking shelves to devote full attention to the needs of customers. TSA 2000 attempted to eliminate this problem by moving receiving and stocking duties, as well as other non-selling functions, to the hours immediately prior to opening or shortly after closing, enabling associates to place a greater emphasis on listening to customers and providing information about products.

In keeping with the year's focus on improving the environment of its stores, the company also invested $4 million in new "ladder-style" apparel fixtures designed to display and coordinate merchandise in a more user-friendly manner. Installed to replace conventional gondolas, the in-house designed ladder fixtures enabled stores to combine graphics and coordinate presentations on the same fixture to make a more powerful impression on the customer and save store space at the same time. Another significant merchandising presentation innovation implemented that year was the use of "statement shops"--designated areas located near the front of the store that feature specialized footwear and related apparel from top manufactures. A New Jersey store, for instance, created a Rugged Apparel shop--complete with a wooden sign with carved letters outlined in green--that featured hiking boots as well as shirts, shorts, and winter flannel apparel from upscale vendors such as Woolrich, Columbia, and Jansport.

As Smith looked forward to the second half of the decade, he predicted that by the year 2000 his company would reach $5 billion in annual sales and expand to 500 stores in the United States alone. His strategy for achieving that goal did not promise to deviate from the "simple blocking and tackling" business fundamentals that allowed for its rise to the top of the industry. Setting a market share goal of 35 percent in each of its markets, the company intended to continue its practice of cannibalizing existing store sales to take business away from mass merchandisers and traditional sporting goods retailers. It planned to finance further expansion--at least 30 stores were scheduled to open in 1996--with proceeds from the $160 million sale of the remaining 29 percent of the company.

According to analysts' long-term predictions, the sporting goods industry as a whole should continue to expand as baby boomers gain more disposable income and leisure time, and as increasing numbers of people take up some form of exercise. The Sporting Authority, with its strong financial base, economies of scale, and technological edge, expects to lead the competition in taking advantage of these trends. Whether or not it will reach the goals of its energetic and ambitious founder remains to be seen.

The Sports Authority, Inc. History

Company Perspectives:

Company History:

Further Reading: