In The Headlines

Sports Authority, a Faded Brand, Falls into Bankruptcy

Once the world’s largest sporting goods retailer, Sports Authority has filed for Chapter 11 bankruptcy and said it will close 140 stores, nearly a third of its locations, over the next three months. Customers and others had long complained that Sports Authority’s shopping experience was drab and outdated. The company kept the design of a no-frills warehouse for athletic supplies, while its competitors (most notably Dick’s Sporting Goods) launched both brick & mortar stores in desirable locations, along with online retail, utilizing current trends in attractive, accessible retail product display—all adding up to a very favorable immersive experience for shoppers.

“In retail, you can’t just leave all the stores alone forever,” said Paul Swinand, an analyst at the investment research firm Morningstar. “You have to constantly reevaluate your stores or else they get old. If you don’t see changes coming and you let that go for too long, you end up with tired stores and tired customers and brands that don’t want to give you their best product.”

In an open letter to customers, Sports Authority Chief Executive Michael Foss acknowledged the challenges of a changing retail environment. He said the bankruptcy process would allow the retailer to upgrade its in-store experience and enhance its website. “This was a tough decision to make, but we believe it was a necessary step in our plan to make Sports Authority an even better partner for our customers,” Foss wrote.

Headquartered in Englewood, CO, the privately held company employed 16,000 people and recorded $3.5 billion in sales last year, according to Forbes. Sports Authority disclosed $1 billion in liabilities in its petition and between $500 million and $1 billion in assets. Sports Authority was purchased by Kmart in 1990 but spun off independently five years later. It merged with Gart Sports in 2003. After its $1.4 billion purchase by the private-equity firm Leonard Green & Partners in 2006, it ceased to be listed publicly.

After the deal, the new owners pledged to reinvest in the retailer’s locations, but then the Great Recession hit, and competitors gained ground. In January, the company reported that it missed a $20 million debt payment. “They haven’t been in a good position competitively for a while,” said Charles Lindsey, an Associate Professor of Marketing at the State University of New York (SUNY) at Buffalo.

Morningstar Analyst Swinand agreed. He said fitness retailers have tended to weather competition from online outlets better than other businesses, in part because if shoppers want an item such as a baseball glove, they typically prefer to go to the store and try it on. Sports retail is a convenience and experience-based business. Sports Authority just could not keep up with its more nimble rivals. “It sounds like Monday-morning quarterbacking,” he said, “but in my mind they had tired stores, and Dick’s just has better brands, better stores and a better shopping experience.”

Sports Authority is the latest of niche big-box retailers to file for bankruptcy protection or close. Circuit City filed for bankruptcy in 2008, and so did bookseller Borders in 2011. Both chains closed soon after filing. RadioShack filed for bankruptcy in 2015, and subsequently sharply reduced its number of stores. Sports Authority has yet to identify the stores it would close. Foss sought to reassure customers that the terms of their gift cards, loyalty programs, and credit cards should not change. In 2011, Sports Authority bought the naming rights to the Denver Broncos’ stadium through 2035. It pays $6 million a year for those rights. It is unclear after bankruptcy proceedings whether the stadium, now named Sports Authority Field at Mile High, will continue to bear the company’s name.

Citations

1. https://wapo.st/1nisVi5 – Washington Post
2. http://cnb.cx/1TnmEjR – CNBC

Target’s Supply Chain Strategy Solution to Out-of-Stock Problem

Being out-of-stock on in-demand items has been a perennial nightmare for major retailers. Such occurrences, known simply as “out-of-stocks,” disappoint customers and deprive stores of sales. Yet running short on a popular item has long been seen as inevitable given the complexity of a national retailer supply chain, as well as the obligation to offer a wide assortment of sizes and formats. But Target thinks it has found the solution: shrinking the variety of sizes, flavors, and even brands on its store shelves, thereby reducing the complexity of its operations.

The discount retailer, the third largest U.S. store chain, is deploying workers to pour through the many categories of products it sells to see how many different formats and pack sizes of products (like bottled water or soap) it really needs to stock in its stores. For Target Chief Executive Brian Cornell, it is a matter of being more efficient in what are staples for the retailer so it can focus more on categories that it has made a priority, e.g., Wellness, Stylish Home Goods, Apparel, and Baby Products. “We will never be famous for selling bottled water or laundry soap,” Cornell told Wall Street analysts. “We have to always be in stock because we know these items are key.” At the same time, Target has to excel at those priority categories, he added.

Target, which last year reported a 2.1% increase in comparable sales and told investors that the company is aiming for growth of up to 2.5% this year, and then 3% in 2017 and beyond, did not detail which products it would cull. But Target is proceeding carefully. The store will start by removing some items at one location, and then roll out to other stores in its 1,800-store fleet if it does not face negative customer feedback. “We are not taking a blunt instrument approach to this,” Cornell said.

The efforts mirror those of Walmart which has also grappled with out-of-stocks and wants to reduce the expense and time of having workers constantly restock shelves. By October, Walmart had eliminated about 15% of its assortment by doing things like offering a ranch dressing in one size rather than six, the Wall Street Journal reported. Many consumer and packaged goods companies seem to have been expecting this development. Former Procter & Gamble CEO A.G. Lafley told fellow industry leaders last June that consumers are put off by too much choice.

Last year, to address the out-of-stock problems, Cornell named former Finance Chief John Mulligan to the new job of Chief Operating Officer with a mandate to fix supply chain issues and inventory management. Those have become radically more complex because of the integration of e-commerce and stores. Target’s efforts have shown early signs of success. Out-of-stocks were down 40% during the holiday season quarter, its fifth straight period of shopper traffic increases.

Other steps Target is taking include putting more product on the sales floor rather than stockroom by redesigning shelves. Under Mulligan’s aegis, Target is optimizing case pack sizes to reduce the number of times a store employee has to move inventory about. Mulligan evoked the example of a Target store getting 24 jars of peanut butter, but its shelves can only take 18. That prevents Target from simply putting the case onto a shelf from the truck since workers have to take the extra six jars out and put them in the back of the store. Ultimately, in this example, the merchandise has been touched by a Target worker three times rather than once, adding to costs. So, Target is telling suppliers to adjust case size to account for how quickly items sell and how much space they will get on a Target store shelf.

This leads back to Target’s ultimate goal of better inventory management and neither having too much inventory, nor too little. “The number one pain point (for customers) is that we’re out of stock,” Mulligan said.

Citations

1. http://for.tn/1oRpSyF – Fortune
2. http://bit.ly/1pqHCRV – BidnessETC.com

The Good News Is . . .

• The economy added a better-than-expected 242,000 jobs in February while the unemployment rate held steady at 4.9%. The bulk of the job gains came from healthcare, retail, and bars and restaurants, which added 57,000, 55,000, and 40,000 new positions, respectively. Construction added 19,000, but mining-related industries lost 19,000 jobs. A separate and broader unemployment gauge (that includes those not actively looking for a job or at work part-time) fell to 9.7% for economic reasons, coming in with the lowest reading since May 2008.

• Humana Inc., a leading health insurance provider, reported earnings of $1.45 per share, an increase of 33.0% over year-earlier earnings of $1.09 per share. The firm’s earnings topped the consensus estimate of analysts by $0.01. The company reported revenues of $13.4 billion, an increase of 8.4%. Management attributed the company’s results to improved earnings from the Group and Healthcare Services segments and higher investment income associated with the repositioning of its investment portfolio in 2015.

• Samsonite agreed to buy one of its most prominent competitors in the luggage industry, Tumi Holdings, for $1.8 billion in a deal that unites two of the biggest companies that cater to business travelers. Under the terms of the deal, Samsonite will pay $26.75 a share in cash. Buying Tumi will give Samsonite an entryway into high-end luggage. Tumi’s roller bags have a cult following among travelers who covet the sleek, black ballistic-nylon models for which the brand is known. Samsonite said that it planned to market Tumi luggage through its own sales network and expand the brand’s reach within Asia and Europe.

Citations

1. http://1.usa.gov/IOsIPK – Bureau of Labor Statistics
2. http://cnb.cx/1gct3xa – CNBC
3. http://bit.ly/1T70NLr – Humana, Inc.
4. http://nyti.ms/1QyRBLz – NY Times Dealbook

Planning Tips

Tips for Lowering Your Car Insurance

Due to the litigious nature of our society and the rising cost of vehicles, car insurance rates have gone up in many areas of the country. Having a good driving record and shopping around for the best policy are, of course, key to lowering your car insurance costs. Below are some other ways to help save on your car insurance. Before making any decision about altering your insurance coverage, talk with your financial advisor and your agent / insurance company.

Insure multiple cars / drivers – If you obtain a quote from an auto insurance company to insure a single vehicle, you might end up obtaining a higher quote (per vehicle) than if you inquired about insuring several drivers and/or vehicles with that company. This is because insurance companies will offer what amounts to a bulk rate because they want your business, and under some circumstances, they are willing to give you a deal if it means you will bring in more of that business. To obtain a discount, ask your agent / insurance company to check and see if you qualify, and get a quote. Generally speaking, multiple drivers must live at the same residence and be related by blood or by marriage. Two non-related people may also be able to obtain a discount, however, they usually must jointly own the vehicle.

Consider raising your deductibles – When selecting car insurance, you can typically choose a deductible, or the amount of money you would have to lay out before insurance picks up the tab in the event of an accident, theft, or other type of damage to the vehicle. Depending on the policy, deductibles typically range from $250 to $1,000. The catch is that, generally speaking, the lower the deductible, the higher the annual premium; conversely, the higher the amount of your deductible, the lower the premium. In some cases, raising your deductible may reduce the annual premium by several percentage points, putting some money back into your pocket.

Take mass transit – When you sign up for insurance, the company will generally issue you a questionnaire. Among the questions it asks might be the number of miles you drive the insured automobile per year. If you use your vehicle to commute three hours to and from work every day, you will generally pay more in insurance premiums than someone who only drives one mile a day. If possible, try to use mass transit to rack up fewer miles, keeping in mind that you will usually have to decrease your mileage significantly before incurring a discount.

Select your vehicle carefully – Buying a large SUV may sound exciting, but insuring a 5,000-pound, top-of-the-line vehicle can be more expensive than insuring a small (but safe) lower-cost commuting car. Also, older cars are often cheaper to insure than their more modern counterparts. Speak with your agent / insurance company about the different vehicles you are considering for insurance to find out the exact rates before making a purchase. Also, some insurers will offer a discount if you buy a hybrid or alternative fuel vehicle.

Drop unnecessary coverage – Dropping certain types of coverage can be a slippery slope. After all, nobody can predict if, or when, an accident will occur. However, if an individual is driving an extremely old automobile that is on its last legs, it may make sense to drop collision coverage (depending on the cost, the individual’s driving record, and other factors). The reason is that were the vehicle to be involved in an accident, the insurance company would likely “total the car.” If the value of the car is only $1,000 and the collision coverage costs $500 per year, it may not make sense to buy the insurance policy.

Citations

1. http://bit.ly/1QSzvn5 – Insurance Information Institute
2. http://edmu.in/1OEaLnm – Edmunds.com
3. http://bit.ly/UcylN9 – Investopedia
4. https://bit.ly/1X0kbcT – USAA
5. http://bit.ly/P57Gjz – HowStuffWorks.com