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Dick’s Sporting Goods and the Opportunities for Growth
BA 301 Final Term Paper Ryan MacAusland
June 9, 2014
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Table of Contents
Executive Summary ..............................................................................................................................3
Position .....................................................................................................................................................4 Sense ..........................................................................................................................................................8
Uncover .................................................................................................................................................. 12 Solve ........................................................................................................................................................ 22
Build ....................................................................................................................................................... 25
Achieve .................................................................................................................................................. 27 Conclusion ............................................................................................................................................ 30
Works Cited .......................................................................................................................................... 31 Appendix 1A ......................................................................................................................................... 33
Appendix 1B ......................................................................................................................................... 34
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Executive Summary
This report focuses on the nation-‐wide sporting goods retailer, Dick’s Sporting
Goods, examining all of its problems, causes and threats, both internally and externally. The
main problems highlighted forward have to do with the economic environment, and
increasing competitive threats, which have triggered many indicators that imply a decline
in company performance. Competitors such as Amazon.com are the main focus of this area
of threat, which will be dissected and investigated in order to diagnose the severity of the
Company’s situation within this context. Economic problems, which have lead to
demographic decline, and uncovered faults and liabilities within the organizational levels
of the company will also be looked at and diagnosed.
While the most important issue looked at is the threat of staunch competition, the
economic factors cannot be overlooked, and connect in different ways to the many
problems that Dick’s faces currently. Dick’s has responded towards the many problems that
have arisen or become uncovered, by implementing and proposing solutions that appear
reactive towards some of the symptoms observed, but not their underlying causes.
Solutions implemented currently involve a switch in inventory focus, aiming at other
demographics through emphasizing apparel products for women and children. Dick’s also
plans to implement changes in the way they manage inventory and communication through
their vast supply-‐chain network. One thing Dick’s is not doing is looking at the long-‐term
trends, which are showing up in their key problems and symptoms. Possible solution which
will be discussed in this report include a change in growth strategy, by focusing less on
brick & mortar presence, and instead concentrating efforts and resources on bulking up the
retailers e-‐commerce presence. Allocation of resources towards community presence, as
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well as advertisement also presents another opportunity for brand awareness for the
Company. The best solution recommended will be a hybrid strategy, combining dick’s key
current plans (with slight modifications), with my top proposed solutions suggested. This
hybrid solution is the best because it attacks all of Dick’s underlying problems from various
angles ways that ensure economic growth, prosperity and efficiency for the Company and
it’s suppliers. The solution put forward will take into account many factors that must be
looked at such as cost-‐benefit analysis, feasibility, timeliness and its risk factors.
Position
Dick's Sporting Goods is an Omni-channel retailer specializing in authentic sports and
fitness products. Founded in 1948 by Dick Stack in Binghamton New York, the company has
grown from a single bait and tackle shop, to the nations largest and most successful sporting
goods chain. They offer a wide-ranging variety of high quality, competitively priced brand name
sporting goods equipment, apparel and footwear in a specialty store environment. Dick’s also
owns and operates Golf Galaxy, LLC, a golf specialty retailer, with 83 locations as well as two
“Field & Stream” stores in two states and three “True Runner” stores in three states as of
February 1, 2014. (2014 10-K Annual Report).
Fiscal Information
Dick’s net revenue for the fiscal year 2013 was approximately $6.213 billion dollars, up
6% from total sales in 2012 (which was approximately $5.836 billion). Their net income after
taxes also increased from $290.7 million in 2012 to $337.5 million in 2013. These increases in
revenue have shown signs of slowing in recent years, due to many factors that will be discussed
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further on. Dicks has also recently decided to issue dividends to its shareholders. In 2011, Dicks
issued a dividend of $0.50 per common share, and in 2012 issued a specialty cash dividend of
$2.00 per share of common stock, plus the $0.50 cash dividend (totaling $2.50). In 2013, Dicks
issued no specialty cash dividend but continued to pay out $0.50 per common share. Additional
fiscal information can be referenced below:
(Values expressed in millions, except stock related prices) Year 2013 2012 2011 2010 2009
Net sales $6,213,173.00 $5,836,119.00
$5,211,802.00
$4,871,492.00
$4,412,835.00
Cost of goods sold $4,269,223.00 $3,998,956.00
$3,616,921.00
$3,422,462.00
$3,195,899.00
Gross profit $1,943,950.00 $1,837,163.00
$1,594,881.00
$1,449,030.00
$1,216,936.00
Net Income after expenses and taxes $337,598.00 $290,709.00
$263,906.00
$182,077.00 $135,359.00
Diluted earnings per common share $2.69 $2.31 $2.10 $1.50 $1.15 Dividends per common share $0.50 $2.50 $0.50 - -
(2009-2014 10-K Annual Report”) Mission, Vision and Company Values
Dick’s mission is to, “be recognized by our customers as the #1 sports and fitness
specialty Omni-channel retailer that serves and inspires athletes and outdoor enthusiasts to
achieve their personal best through the relentless improvement of everything we do” (About
Dicks).
The scope of this statement along with the Company’s “relentless improvement of
everything we do,” provides insight into a vision where Dick’s hopes to stand in the future of the
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outdoor retailer industry, and how it wants to get there. Dick’s core purpose, fundamentals and
strategies, express a broader vision:
“Build leading brands that serve and inspire athletes and outdoor enthusiasts around the
world to achieve their personal best; create value for our shareholders through the relentless
improvement of everything we do; and make a lasting impact in our communities through sport”
(2014 10-k Annual Report).
Dick’s Sporting Goods is heavily oriented towards building a sustainable competitive
advantage through improving and maintaining customer and operational excellence within their
business, and providing high quality, authentic products. Their corporate values directly
influence customer and operational excellence through three points listed below, and on their
website ("Dick’s Sporting Goods Mission Statement” below):
We work together. We are collaborative, accountable, trusted, and we recognize and celebrate
each other's accomplishments.
We work smart. We are friendly, available, customer focused, and excited about what we do.
We are authentic, rooted in sports, cutting edge, exclusive and first to market with our products
and services.
[Farfan, Barbara]
The values articulated demonstrate a commitment and desire to build and retain loyal
customers, through excellent customer service, superior products at a competitive price, and
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efficient internal operations. In addition, Dick’s website highlights its employee culture and
additional values that emphasize a common belief and desire to stay driven, committed, skilled
and passionate. To live for “the sport, the team, and the community,” is just another example of
how committed they are towards customer excellence (“Culture and Values”).
Stakeholders (Primary)
Primary stakeholders for the company undoubtedly stand to be the company’s
shareholders, suppliers, and their 34,300 employees (as of May 2014).
Part of Dick’s vision is to, “create value for our shareholders through the relentless
improvement of everything we do.” Many shareholders who have invested money for a stake of
Dick’s stock expect a return on investment. This is especially true now that the Company has
begun to issue annual dividends. It is considered very abnormal to stop issuing dividends once a
company has already decided to do so. Companies that issue dividends are considered stable, and
signify growth and prosperity for many shareholders or prospective investors. Poor fiscal
performance greatly affects a company and it’s shareholders, and can pressure and influence
decisions within the company, such as judgments on hiring and firing a board of directors.
Suppliers for the company are immense; due to the variability of products Dicks sells in
their stores. Supplier’s range from company’s like Coca Cola (sold at point of sale registers), to
corporations such as Everlast, Nike and Adidas. These companies rely on sporting good stores
like Dick’s for a large percentage of their revenue and profit. Another key to Dick's success is its
emphasis on private labels. The company is developing its own products and sourcing them from
suppliers, most in Asia. Dick's has created a line of Adidas baseball bats and gloves that didn't
exist before. It also makes products under the Maxfli, Slazenger, and Field & Stream brands.
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Profit margins are higher for their private brands, and account for about 15% of sales (Gunther,
Marc).
As of May, 2014, Dicks employed approximately 34,000 personnel. Among the
employees include a board of directors, accountants, regional managers, store managers, stock
workers etc.. These stakeholders are important because they directly rely on the success and
financial stability of Dick’s, to be able to work and have a job and support themselves. Poor
performance can lead to layoffs, and poorer performance from a staff with lower job security,
and confidence in their employer.
Stakeholders (Secondary)
Dicks is famous for generating and supporting the communities that surround the
areas where there are stores. They consistently give back to their communities through
outreach programs that support the various local sports teams, leagues and athletes, and
play a vital role in teaching children fundamental values like a strong work ethic,
teamwork and good sportsmanship. Dicks also helps out communities by providing
employment opportunities for those in the community, as well as economic prosperity to
surrounding stores and towns.
Sense
As discussed earlier, Dick’s core values demonstrate a pledge and desire to build and
retain loyal customers, through excellent customer service, superior products at a competitive
price, and efficient internal operations. However the last two values listed, are becoming
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threatened due to a variety of reasons, including; staunch competition, negative external
environmental factors, poor supply chain management, lower demand in high market products,
shortcomings from offshore manufacturing and poor company flexibility towards changing and
adapting. The economy is the underlying cause for most of the symptoms and problems
observed, leading to poor company performance.
Key Symptoms
The first indicator to a problem I noticed occurred when I looked over Dick’s
financial data from its 2014 10k annual analysis report. From 2012 to 2013, even though
the Company added 40 new stores, net sales increased only 6.4%, down from a 12%
growth from the previous year. A gap of 6% is a blatant indicator that growth within the
Company is slowing.
Another symptom observed, is the fact that inventory turnover within the company
has slowed for the fourth year in a row. Since 2010, turnover has been steadily declining,
however this year marks their greatest drop as Dick’s inventory turnover ratio fell to 3.18 from
3.33 the previous year. It is taking much longer than expected for the company to sell their
products, and total inventory retained stood 12.4% higher than it did last year (“Rough Start to
2014?”). In addition, their gross profit margin and operating margin fell 20 and 40 basis points
respectively, while selling, general and administration expenses increased (“2014 10-K
Analysis”). These patterns within the company are a signal of inefficiency, but they can also be
attributed to lower than expected sales for 2013, resulting in this higher surplus. Other symptoms
include a 15% increase in sell side consensus, meaning that there is a 15% increase in
stockholders that believe the company’s stock price will go down. According to Ronald Thomas,
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CFA for Minyanville.com, this is, “a huge red flag since companies almost never achieve
sellside long-term growth rates.”
Causes of Symptoms
One problem has to do with the success and growth of competition from online
retailers. Amazon.com continues to sell and cater to a growing and more diversifying
target segment. Online retail spending in the US is growing at a fast pace, and this trend
is expected to continue for many years. According to the US Department of Commerce,
online retail sales in the US rose in 2009 from $142.6 billion to $224 billion in 2012,
showing an annual growth rate of 16%. Of the total retail sales for 2012, e-commerce
accounted for 5.2% of those sales (compared to 4% the year prior). Furthermore, e-
commerce sales, totaled $67 billion for the third quarter of 2013, increasing 17.5% from
the year prior (“Dick's Sporting Goods, Inc. SWOT Analysis”). So far, much of Dick’s
decrease of same-store sales can be attributed to the rise in popularity and growth of
ecommerce. If something isn’t done to stop or keep up with this growing demand, then
Dick’s will continue to lose sales.
Another problem Dick’s has been facing has been the decline in quality of
products that the Company so proudly claims in their core values statements. This
problem also has to do with dependence on foreign suppliers from offshoring.
Dependence on foreign suppliers expose the company to the risks associated with
operating in countries such as China, Taiwan and South Korea. A large percentage of the
products that Dick’s purchases, is primarily manufactured in these countries (including
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products purchased from domestic wholesalers). Products manufactured in China have
recently come under investigation from consumer protection organizations with respect to
quality of the products made (“Dick's Sporting Goods, Inc. SWOT Analysis ”). While
offshoring cuts costs, this quality problem hurts the company’s image, and also it’s
supply chain efficiency.
A contributing factor to the most recent financial lackluster could be the unusually
cold winter experienced this year, and general lack of people willing to venture outside
due to the harsh conditions. Demand for sporting goods depends on state specific
preferences as well as weather and seasonal related climate changes, or physical
environmental factors. For example, “fishing lures for catfish and bass do well in Texas,
but anglers near the Chesapeake Bay are more expected to set their hooks for saltwater
fish (“Dick's Sporting Goods, Inc. SWOT Analysis”).” Climate and weather changes also
play a significant role in deciding which merchandise will be offered in a particular
region or state. “While bats and gloves start selling in Florida before Christmas, they
don't sell that well in Buffalo, where it is very cold until just before Easter (“Dick's
Sporting Goods, Inc. SWOT Analysis”).” While problems such as the weather, are out of
Dick’s control, the adaptability for reacting to shifts in weather or specific consumer
demands are not. This problem also affects the supply chain management of Dick’s, and
could be the result of the large inventory turnover symptom experienced.
A large proportion of Dick’s market segment, targets an age demographic of
consumers below the age of 25. The problem with this is recently there has been a decrease
in the participation of US. Sports, such as wrestling, football, soccer, basketball and
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volleyball. These sports have all seen double-‐digit percentage declines among the seven to
17 age groups (“Dick's Sporting Goods, Inc. SWOT Analysis). In addition, participation in
physical activity as a whole has been rising at a rate of .09%, due mostly to the growth in
popularity for alternative exercise methods such as yoga and Pilates. These alternative
exercise methods are targeted more towards the higher age brackets, being the 30 and
above demographic. Additionally, with college costs and debt rising among the under 25
demographic (along with low workforce numbers in the job market), many are without
cars, and living with their parents (Thomas, Ronald). It makes generating sales especially
hard for the company when their target consumers are losing interest in their products,
can’t drive to their stores, and are much more frugal with their spending habits.
All of these problems contribute one way or another to the negative symptoms
experienced with the Company. The indicators observed above mostly compliment each
other; in other words, one symptom may lead to another and visa versa. On a positive note,
this means if one symptom gets treated, the others will as well. Out of all of these problems,
and the indicators associated with them, there is one underlying source.
Uncover
The most critical and urgent problem facing Dicks is the rise in popularity and
growth of e-‐commerce competition. However, the underlying cause of all the problems and
symptoms experienced has to do with the economy. Negative economic factors don’t just
mean lower disposable income with target consumers; it can also mean a shift in customer
interest preference (whether its preference in different sports, lifestyles, purchasing
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methods or quality of products). There is a series of causal loops that has been created due
to this problem, which has led and uncovered most of the problems discussed in the sense
section. The most important problem the Economy has uncovered is this rise in online
competition, which has caused this decline in sales (and thus the rise in inventory
turnover). This section can be illustrated in the Diagram below:
One of the first effects the most recent economic downturn has caused, is the
average decline in disposable income of Dick’s core target demographic, which are athletes
under the age of 30. As discussed in the “Sense” section, there has been a decline in sales
among this bracket. Many of the consumer in this demographic either cannot find jobs, do
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not want jobs, or are going to college and facing many frugalities as a side effect of
increased expenses from cost of living and tuition. As a result, many of the under-‐25 target
segments do not have the money to own a car, drive to large stores, and purchase non-‐
consumable commodity items.
This decline in disposable income in this core demographic has led to a causal loop
for declining participation in most popular U.S sports, and a decline in store sales from
younger consumers. Because a large proportion of young consumers cannot afford to shop
at stores, there has been a decline in sales (across all sporting good businesses), and
because of this, participation is U.S stores has slowed, and that lower participation in sports
thus cyclically reinforces a further decline in sales.
[External Economic Environmental factors lead to….]
Core demographic cannot afford to shop à Decline in core demographic sales à
lower participation in sports à leads back to decline in sales
When one thinks of competition for a Sporting Goods store, names such as Sports
Authority, and Big 5 come to mind. In the outdoor sector, Cabelas and REI are big names, and
within the sports apparel niche, Footlocker, Target, and even Wal-Mart are major players. The
advantage Dicks has over all of these names, lie within its “store within a store” concept and
approach. When you walk into a Dicks location, the customer sees more than just a sporting
goods store, they see a golf specialty shop, a shoe store, a Nike store, a tackle shop and so on.
Dicks is able to successfully compete with niche retailers by simply covering almost every aspect
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of outdoor and indoor recreation within a single location, and with an extensive selection to
choose from.
However, a side effect that has resulted from the lowered income of the under-‐25
demographic is the prosperity of ecommerce websites like Amazon.com. The advantages
ecommerce brings to this demographic, outweighs some of the benefits physical stores
such as Dick’s bring to their best interests. As a result, younger people are much more
willing to purchase online. Amazon is able to cut overhead costs that would normally go
towards employees, physical stores and supply chain steps that go with having store
locations. Because of this, they are able to give incentives to people who buy online by
offering lower prices and free shipping. For Dick’s this poses a problem, as Amazon uses
these perks to attract customers away from brick and mortar stores. In addition, younger
consumers are more tech savvy, and value an easy website interface with reliable and
efficient ways to purchase a product. Amazon has improved even more so by adding
additional options for customers, such as package bundle discounts, or their one-‐click-‐
ordering button. This feature gives buyers the option to buy an item and have it instantly
shipped to your address in just one click; no adding to cart, or checkout pages to verify
payment or shipping, just simply one click. Amazon is also famous for their outstanding
customer service strategies, which is also something that Dick’s holds as one of their most
important values.
To many, Amazon holds a clear advantage over most brick & mortar retail stores.
However, there are still many reasons why Dick’s has, and can continue to hold certain
advantages over the online giant. Looking at the top 190 best selling items for Dick’s, 55 of
the 190 items (29%) weren’t even listed on the Amazon website (“How Dick’s Manages to
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Fight Off Amazon”). Dick’s large store space within their brick and mortar locations enable
them to carry items that would be ill advised to buy and order online. Item’s such as
basketball hoops, kayaks or other large scale items would be difficult to ship, while other
products like baseball gloves, shoes, clothes, and golf clubs, consumers want to try out
before they make a purchase. While Amazon’s return policy makes it easy to swap out
items, many customers don’t mind traveling to their nearest store so they can make their
first choice, the right choice. For this reason, Amazon creates a lot of cognitive dissidence
with customers who don’t what it is they are buying. Another way Dick’s has managed to
avoid Amazons retail stranglehold, lies with their guns and ammo division. Dick’s has a
very large physical presence in the east and southern parts of the United States, where gun
ownership is prevalent, and it is impossible to buy guns and ammo through the online
retailer. All in all, both retailers are able to hold different competitive advantages over each
other.
Competitions from other online vendor websites such as nike.com or
underarmour.com aren’t quite as significant or threatening as Amazon.com. This is due to
the fact that Dick’s has a strong relationship with its vendors, and collaborates with them to
source merchandize from these companies that are exclusive to Dick’s and cannot be
purchased anywhere else. Deutsche Bank analyst Mike Baker estimates 20-‐30% of Dick’s
brand name clothing merchandise is exclusive to the company.
All of the problems discussed before uncover another problem that Dick’s has;
Adaptability issues. Adaptability is a broad term, and applies to many different factors of
management. In the Company’s case, it applies to strategic, tactical and operational
decision making in the short and long term, including supply chain management, inventory
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and marketing. Other factors such as weather changes, affect demand shifts for customers,
and uncover the issues Dick’s has had with adapting to these changing demands. In the
past, the company has shown a lack of agility that showed up on their books in negative
ways. Last year, examples of this lack of agility included the downfall of Lance Armstrong,
in which the company’s Livestrong apparel and equipment suffered greatly due to the
negative media attention surrounding the athlete and his organization. Dick’s had a hard
time adapting to this issue, and thus suffered a drop in sales. In addition many items were
under stocked as unusually warm weather plagued the region in the winter of 2013. This
year, weather conditions in the north and east showed unusually cold climates, which once
again negatively affected Dick’s sales (“Taulli, Tom”). In terms of decision making at the
upper levels of the Company, there is a dead set focus on expanding the company through
building new brick and mortar stores in more locations, nation-‐wide. Last year, total sales
only grew 1.5%, and store sales actually dropped by 2.2%. The only reason there was
growth for the Company in 2013, was because of a sharp increase in the amount of e-‐
commerce sales, which offset the decline in store growth. Even though the company is
growing at a rate of about 40 stores a year, sales continue to drop. Management needs to
adapt to this slowing growth, or else they will start to closedown underperforming
locations, which looks bad to shareholders.
In addition adaptability problems within the Company also uncover issues with
supplier dependence, and supply chain agility. Dependence on foreign suppliers exposes the
company to the risks associated with operating in countries such as China, Taiwan and South
Korea. A large percentage of the products that Dick’s purchases, is primarily manufactured in
these countries (including products purchased from domestic wholesalers). Products
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manufactured in China have recently come under investigation from consumer protection
organizations with respect to quality of the products made (“Dick's Sporting Goods, Inc. SWOT
Analysis ”).
According to Dick’s Company Profile SWOT analysis, “Imports from China were
recalled by The US Consumer Product Safety Commission (CPSC) twice as often as products
made everywhere else in the world. In 2010, CPSC issued 220 recalls on Chinese goods.
Furthermore, the Consumer Product Safety Improvement Act (CPSIA), which was passed in
2008, created additional hurdles for the entry of goods made in China and has generally made it
more challenging and costly for Hong Kong and mainland exporters to ship their products to the
US.” .
Interference in the imports or increase in the costs of goods will negatively impact
Dick’s operations and cost structure. Its high dependence on Asian foreign suppliers might also
lead to an increase in recalls, thus staining the company's image.
The reason I hold e-‐commerce competition (from Amazon) as the most urgent
problem to address, is because the growth rate for Amazon will give them the opportunity
to decrease the margin of advantages Dick’s currently holds over the online retailer.
Although Amazon is currently operating at a loss, and with poor operating margins (1% vs
Dick’s 8.64%), their revenue growth consistently outshines most companies. It is obvious
that Amazon is betting that the profit-‐ and cash-‐flow-‐draining strategies of today will result
in outsized profit growth later. Those strategies include pricing products and adding perks
(free shipping) to attract customers that would otherwise go to bricks and mortar stores
like Dick’s. (“How Dick’s Manages to Fight Off Amazon”). In short, Amazon is currently
trying to starve out other businesses by operating at a loss, and while customers flocking to
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the online retailer get more attached, they’ll get used to buying online, and continue to do
so further down the road as the company expands its horizons. Not only is this strategy a
main contributing factor to Dick’s present diminishing sales, if this plan succeeds, it
can likely spell future and greater competition problems for the Company.
Possible Solutions:
Overall, the possible solutions for this problem vary in cost, feasibility, risk, benefit
and time. These solutions would all be implemented to curb the growth of Amazon.
Already, Dick’s has begun to implement solutions that could limit and manage the problems
discussed. However, these solutions are very reactive to the Company’s immediate
problems, and do come with risk.
In an attempt to combat their segment decline, Dick’s is targeting other
demographics, focusing and dedicating more of their sales towards women and children’s
apparel. This move can bring heavy consequences towards sales and inventory turnover, as
women and children’s clothing is a much more competitive market than that of sporting
goods equipment. Although this push in market segmentation brings risks, I can see why
management has chosen to heavily target this new demographic. With the decrease in
interest for conventional sports and the rise of alternative exercise, Dick’s is attempting to
cater to a demographic that is much more financially stable, typically has children, and
gaining interest in alternative fitness (Thomas, Ronald). According to IBIS world,
households with children represent the majority of the major market segmentation for the
industry, at 55%. On top of that, footwear and apparel represents a majority 54% share of
the products and services segmentation while athletic equipment is 46% (“Sporting Goods
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Stores in the US”). The shifting focus to women and children’s apparel presents
opportunity, but opens up new problems as well, as the market is one of the most
competitive industries among retailers, with rivals such as Macy’s, Target, Wal-‐Mart, and
Footlocker.
The company is reacting to lower in store sales by implementing a “buy
online/pickup in-‐store” system, which it believes will be a great benefit to customers as
well as drive more shoppers into the store. In 2014, the retailer plans to pilot ship-‐to-‐store
capabilities allowing it to ship large, heavy items such as treadmills to stores for customer
pickup or cheaper local delivery. All fulfillment options from vendors in the retailer's stores
will significantly reduce the transaction fee associated with them (“Giannopoulos Nicole”).
The company is also attempting to increase supply chain efficiency through
deployment of several major systems to optimize the movement and management of
inventory. This technology automates distribution centers; tracks and coordinates
domestic and international freight; monitors the performance of vendors; helps to control
costs; and provides real-‐time insight into the productivity of the retailer's network
(“Giannopoulos Nicole”).
"The productivity and accuracy of our supply chain has increased dramatically since
we began investing in information technology just a few years ago," said Matthew Lynch, CIO
and SVP for Dick's Sporting Goods. "Our goal is to solve the ultimate retail challenge: the
right product in the right size and color at the lowest cost, priced by channel and region,
available at exactly the right time in exactly the right quantity and, of course, located right
where the customer wants it"(“Giannopoulos Nicole”).
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This implementation phase not only solves supply chain weaknesses, but also
adaptability issues, demand preference shifts and one that caters across all demographics.
One problem with his plan however, is the part when Lynch discusses his goal
where he wants the product, “where the customer wants it”. Lynch is still going along with
the company’s long term expansion plans which were incorporated before some of the
Company’s major problems even existed. He is also trying to solve problems that have been
uncovered due to the higher causes resulting in the Company’s main side effects, such as
weak in-‐store-‐sales brought upon by the Economy, and Competition. In other words, he is
trying to solve the side effects of decreasing sales and rising inventory turnover, by trying
to fix and appeal to the lower rungs of the fishbone diagram shown earlier (and in
Appendix 1a). He is not adapting large enough, and though I feel the company is on the
right track towards fixing their problems, they still need to implement a plan that brings in
higher risk, with a greater benefit but with lower cost.
The main solution I would like to implement is a hybrid of most of Dicks current
plans, but with a cut to Brick and Mortar expansion, and an increase in e-‐commerce
investment, along with a boost in advertisement aimed towards highlighting the company’s
social responsibilities and contributions towards the small town communities they provide
for. By doing this, Dick’s is adapting to the problems created through competition, but is
also creating much more opportunity through the benefits of this plan, in the form of cut
overhead costs, lower inventory turn-‐over, and managing in store sales decreases. In
addition, Dick’s will be returning to its roots highlighted in it’s core values and mission
statement towards a superior competitive advantage in customer service through the
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actions, contributions and influence each store has on it’s community. By implementing this
plan, Dick’s restores its dominance in their three core values highlighted at the beginning of
the “Sense” section earlier.
Solve
As discussed earlier, Dicks has reacted to the problems which have arisen over the
past few years. Some of their solutions are better than others, but all aim to cure the side
effects ailing the company’s growth. Below is a decision matrix that weighs Dick’s main
adjustments against my possible solutions. Each option is graded under a decision making
factor in accordance to Cost, Benefit, Feasibility, Risk and Time. Some factors are valued
higher than others for the company, and the best solution will be the one that has the
highest grade of the six.
For the decision-‐making factors, I weighed benefits higher than the other factors, as
it is the most positive value Dick’s management would care about in terms of implementing
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plans for the future of the company. Benefits in relation to cost, feasibility and risk, have a
3/2 ratio, while time is important, but the least urgent of the top five decision making
factors.
As discussed earlier, Dicks is attempting to combat their key demographic segment
decline, by focusing more on women and children’s apparel. While this solution is fairly
feasible, the benefits are low and the risk is high, due to the strict competition Dick’s would
be creating by using this strategy. By trying to fix one problem, they would be creating
others. I don’t think it is a bad idea to increase focus on this strategy, but to completely rely
on it is too risky, and the cost/benefit margin is too small.
Investing in website capabilities to boost e-‐commerce trade, and implement a Buy
Online/Pick-‐up in store system is very smart. This system that the Company plans to adopt
and build, also focuses on ramping up shipping, with plans to offer delivery services for
even larger items such as treadmills and basketball hoops. This Solution is one that comes
with a high cost, but great benefit, as it would directly rival Amazon’s current strategies. A
plan such as this though requires a lot of resources, and would take a considerable amount
of time to implement, with such a large web of stores spread out over the country. This plan
would also need to see a boost in efficiency and reliability in offshore manufacturers, as
well as supply chain management, which leads me to the next solution:
Investing in technology that automates distribution centers, tracks and coordinates
freight, monitors performance in vendors, helps to control costs, and provides real-‐time
insight into the productivity of the retailer's network. Cost and time to implement are once
again the greatest factors here. The benefits for this supply-‐chain overhaul are promising,
but once again, the costs for implementing such a solution would hurt the company if such
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a plan were not to succeed. It is a very rational solution though, and is reactive to one of
Dick’s largest symptoms that are their rising overhead costs, and increasing inventory
turnover ratio. This system also combats their agility and adaptability issues.
Decreasing the Company’s brick & mortar expansion is a very direct solution, but
one that makes sense considering the trends surrounding the company’s performance, and
the current socio-‐economic environment. Dick’s has hit a plateau in growth, and to
continue building new stores in new locations at their current rate is simply not feasible.
The benefits for this plan simply compliment the other decision-‐making factors. In other
words the benefits of this plan is the fact that this plan would be feasible, quick to
implement, and cut costs. The costs saved by implementing this plan can be reallocated
towards other solutions that would require considerable investment; Solutions such as
advertisements, supply-‐chain technology or e-‐commerce growth.
Increasing community presence and advertisement is a low risk, low cost plan, but
with also doesn’t benefit the company as much as the other solutions. However, this plan is
something that would still be good to implement because of its feasibility and cost/benefit
breakdown.
A hybrid plan (which would be an implementation of all but the first solution) is
clearly the best choice. Specifically, it would utilize ideas from all of these solutions, and
implement them modestly, but across all boards. Every solution talked about thus far, is an
attempt to solve one or more of the company’s problems as highlighted earlier. This hybrid
solution covers and fixes all of Dick’s main problems and symptoms in one fell swoop. As I
discussed earlier in the “Uncover” section, Dick’s needs a solution that has higher risk, but
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with minimized cost, and a potential benefit that would figuratively build a skyscraper on
top of Dick’s “growth plateau”.
Build
This plan is one that raises the bar on both the cost and benefit sides. Dick’s needs a
solution to combat their slowing growth and emerging competition. A hybrid plan, such as
the one recommended, is a solution that hits all of the Company’s problems from all angles.
It is a plan that utilizes management’s current proposals, while cutting costs and increasing
growth in new and innovative ways. Innovation comes in the form of new technology, and
as of now, Dick’s is finding new ways to invest and implement technology in ways to solve
their supply-‐chain and foreign supply problems.
"The productivity and accuracy of our supply chain has increased dramatically since
we began investing in information technology just a few years ago," said Matthew Lynch, CIO
and SVP for Dick's Sporting Goods. "Currently, our teams are evaluating how store-‐based
fulfillment aligns with our future investments in supply chain" (“Giannopoulos Nicole”).
These structures are crucial to the well-‐organized operation of Dick's business and
are essential to the way the business operates, plans, and grows the company. Seven of
Dick’s core merchandising and inventory control systems have been selected to optimize
the core elements of business activity, specifically “financial planning, assortment plans,
space management in stores, pricing controls across all channels, allocation of seasonal and
fashion merchandise, replenishment of perpetual inventory, and key performance
indicators and management controls” (“Giannopoulos Nicole”). This year however, Dick’s
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wants to implement a final plan for improving efficiency with supply chain management,
foreign suppliers and demand adaptability. Dick's will implement its latest system, which
will help to better understand and forecast consumer demand across all businesses.
Decreasing brick and mortar expansion helps offset cost for establishing expensive
plans, which this new strategy brings. While risky, it makes sense with the recent decline in
the retailers’ in-‐store sales. This strategy does not mean closing stores, or stopping brick
and mortar expansion completely though. In 2008, Dick’s had 358 locations, and that
number has grown to 558 locations as of January 2014. According to the Company’s most
recent 10k analysis report, management wants to expand their physical presence to nearly
twice that (“Dick’s 10k Analysis Report 2013”). Halting store expansion completely would
look bad for the company and it’s stakeholders, but continuing on it’s current pace, while
in-‐store sales continue to suffer look equally bad. Dick’s should invest more time and
research into finding suitable locations for expansion, taking into account a number of
external economical and environmental factors before expanding. Their current
technological growth strategies that compile consumer data will be essential towards
research into suitable brick & mortar growth. While freeing up cost, the risk associated
with slowing physical expansion includes lower all-‐around sales growth for the company,
which is why resources saved from this endeavor must be allocated responsibly towards e-‐
commerce growth (which have shown considerable development over the years). Not only
does e-‐commerce growth directly battle with Amazon’s greatest assets, it also presents
other opportunities for the company, including new target demographics, and lower
overhead costs, inventory turnover ratios, and better supply management (with advances
towards automation and agility).
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The increase in community presence and advertisement is almost all benefit with
relatively low cost and risk. It is a good idea to add onto the plans, because it reinforces one
of Dick’s top three values and goals highlighted in their mission statement. Dick’s would
increase community presence by publicizing donations to local little league sports teams,
sponsoring events such as marathons, local sports games, and providing athletic trainers to
administer first aid if any injuries arise. Dick’s would also benefit from advertising these
campaigns across the country, during televised professional games (and even international
events that the U.S participates in, such as the World Cup or the Olympics).
Cost/Benefit Analysis for Stakeholders
Overall, this hybrid plan is one that affects almost all stakeholders in mixed ways.
The community surrounding various locations would benefit immensely, however,
stockholders and employees would be affected in ways that would depend on the results
this plan brings. If e-‐commerce explodes, then sales will increase, which will of course bring
positive benefits; but with this plan it is almost guaranteed that efficiency in the supply-‐
chain will save enormous costs. The decrease in brick & mortar expansion does bring
uncertainty with stockholders, and could signify bearish traits fiscally within the company.
Truthfully, only time will tell if this perspective of the strategy works.
Achieve
Overall, achieving this plan is one that will take time (depending on certain aspects
of the plan), and involve many steps, due to the size and amount of angles this solution
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carries. Implementing this hybrid plan must be done in a way that gears each piece of the
solution one step at a time.
Referencing the decision matrix, the quickest area of the plan to implement is the
decrease in brick & mortar expansion. This is also one of the most feasible and easiest
aspects of the plan to accomplish. This idea is at the strategic decision making level of the
organization, meaning the top executives can simply slow down expansion of physical
sights immediately.
After slowing brick & mortar expansion, management needs to focus on supply
chain efficiency, which as explained earlier comes in the form of investment and
advancement into newer technologies that focus on consumer demand, inventory
placement and management. In order to implement this plan, cooperation in all levels of
the supply chain must be ensured to guarantee proper communication and efficiency
through the stages. Recruitment of third party consultation would be ideal to tackle this
goal. Considering that this stage has so many angles and levels of support, the most cost
effective approach would involve software and hardware developments (such as RFID
tags) that have been proven to be successful, and increase productivity in other large-‐scale
corporations. This aspect of the plan is one that can take anywhere between 6 months, and
2 years to implement, depending on how results and success within the chain is measured.
Once greater supply-‐chain efficiency has become established, it is then possible to
implement the third stage of this plan. Increasing e-‐commerce is not only one of the most
important aspects of this solution; it also cannot be done until efficiency in the supply chain
is optimized. Once again, third party consultation would be very effective, however
decisions such as prices and shipping expenses of online inventory would be completely
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decided upon executive management. The first step towards implementing this plan, is
complete website overhaul. Creating an online presence that is both user-‐friendly, and
efficient for inventory management generates opportunity for other features such as in-‐
store pick up, delivery and marketing information about Dick’s consumers. Rewards
programs and advertisements become much more relevant once e-‐commerce develops into
a core focus of the Company’s sales strategy. The biggest key to realizing this goal is to
make sure the company has realized the second stage of the complete plan, which would be
supply chain advancement. Once that has been achieved, then the company can go about
increasing its presence online through creating a website that rivals Amazon’s, which
would take considerable investment and B2B recruitment from developers and marketing
analysts and managers. Once e-‐commerce gains more traction in sales and awareness,
analysts can extract raw data from these sales and use that towards further investment in
the strategy, as well as the last step of the plan, which would be advertisement and
community presence.
This stage of the plan is one that is very multifaceted. It would involve considerable
investment of time, money and services from the Company’s various locations, as well as
from the top levels of management. Extensive research for every store location and its
surrounding community would be essential. This research would also decide a budget for
community outreach, and how that budget can be properly divided amongst all of Dick’s
locations across the country. Once these plans have become implemented, proper
advertisement through selective promotion (i.e. Sports Illustrated ads, Television
Commercials for professional sporting events, word of mouth etc.) can be budgeted and
produced.
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Conclusion
In conclusion, Dick’s Sporting Good’s problems, symptoms and their indicators
observed mostly compliment each other; in other words, one symptom may lead to another
and visa versa. On a positive note, this means if one symptom gets treated, the others will
as well. This hybrid solution proposed is one that can solve all of the company’s problems,
and thus cure the Company’s negative symptoms that have resulted in other consequences
such as decreasing stock price valuation. By implementing this plan, the Company will
increase it’s supply-‐chain management, productivity, and efficiency, while decreasing their
liabilities and focus on opportunities that will benefit the retailer in more ways than their
current tactics are doing now.
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Works Cited Taulli, Tom. "Should I Buy Dick's Sporting Goods? 3 Pros, 3 Cons | InvestorPlace." InvestorPlace RSS. InvestorPlace Media, 9 Apr. 2013. Web. 01 May 2014. <http://investorplace.com/2013/04/should-i-buy-dicks-sporting-goods-stock-3-pros-3-cons/#.U1redl5LNfQ>. Constantino, Frank. "Can Dick's Sporting Goods Keep Sprinting Ahead?" The Motley Fool. N.p., 10 Dec. 2012. Web. 01 May 2014. <http://beta.fool.com/fjconstantino/2012/12/10/how-long-runway-dicks-sporting-goods/18150/>. Thomas, Ronald. "Analysts Are Ignoring Future Pricing Problems at Dick's Sporting Goods." Minyanville. Minyanville Media Inc, 26 Sept. 2013. Web. 01 May 2014. <http://www.minyanville.com/sectors/consumer/articles/Analysts-Are-Ignoring-Future-Pricing-Problems/9/26/2013/id/51956?refresh=1>. Hawaux, Andre J. "Dick's Sporting Goods 2013 10-‐Q November Report." Dick's Sporting Goods â�“ Investor Relations -‐ SEC Filings. N.p., 2 Nov. 2013. Web. 15 Apr. 2014. <http://phx.corporate-‐ir.net/phoenix.zhtml?c=132215&p=irol-‐SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTkyNTI1MzQmRFNFUT0wJlNFUT0wJlNRREVTQz1TRUNUSU9OX0VOVElSRSZzdWJzaWQ9NTc%3d> Hawaux, Andre J. "Dick's Sporting Goods 2014 10-K Annual Report." Dick's Sporting Goods â�“ Investor Relations - SEC Filings. N.p., 1 Feb. 2014. Web. 15 Apr. 2014. <http://phx.corporate-ir.net/phoenix.zhtml?c=132215&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTk0OTY4MDYmRFNFUT0wJlNFUT0wJlNRREVTQz1TRUNUSU9OX0VOVElSRSZzdWJzaWQ9NTc%3d>. "Can Dick's Sporting Goods Run After A Rough Start To 2014?" Dicks Sporting Goods Inc (DKS) News:. Seeking Alpha, 8 Apr. 2014. Web. 15 Apr. 2014. <http://seekingalpha.com/article/2130233-can-dicks-sporting-goods-run-after-a-rough-start-to-2014>. Turk, Sarah. "Sporting Goods Stores in the US." IBISWorld. IBISworld, Mar. 2014. Web. 15 Apr. 2014. <http%3A%2F%2Fclients1.ibisworld.com%2Freports%2Fus%2Findustry%2Fdefault.aspx%3Fentid%3D1079>.
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"Dick's Sporting Goods, Inc. SWOT Analysis." Dicks Sporting Goods, Inc. SWOT Analysis (2014): 1-‐10. Business Source Premier. Web. 15 Apr. 2014. http://web.b.ebscohost.com/bsi/pdfviewer/pdfviewer?sid=3ea56ba3-‐d5c3-‐468c-‐afdb-‐ f479641f97f4%40sessionmgr113&vid=4&hid=103 YCharts. "How Dick's Manages To Fight Off Amazon." Forbes. Forbes Magazine, 26 June 2013. Web. 10 June 2014. <http://www.forbes.com/sites/ycharts/2013/06/26/how-‐dicks-‐manages-‐to-‐fight-‐off-‐amazon/>. "Amazon.com's Operating Margin by Quarter." Amazon.com (AMZN) Operating Margin Starting from First Quarter 2014 to First Quarter 2013, Profitability Trends and Ranking, Fundamental Ratios. CSI Market, 31 Mar. 2014. Web. 10 June 2014. <http://csimarket.com/stocks/singleProfitabilityRatios.php?code=AMZN&oper>. Thau, Barbara. "New Study Reveals Why Consumers Really Shop Online (Surprise: It Isn't Low Prices)." Forbes. Forbes Magazine, 08 Oct. 2013. Web. 10 June 2014. <http://www.forbes.com/sites/barbarathau/2013/10/08/why-‐consumers-‐really-‐shop-‐online/>. Giannopoulos, Nicole. "Dick's Ship-‐from-‐Store Lowers Cost, Increases Speed | Retail Best Practices | RIS News: Business/Technology Insights for Retail, Supermarket Executives." Dick's Ship-‐from-‐Store Lowers Cost, Increases Speed | Retail Best Practices | RIS News: Business/Technology Insights for Retail, Supermarket Executives. Retail Info Systems Inc., 24 Sept. 2013. Web. 10 June 2014. <http://risnews.edgl.com/retail-‐news/Dick-‐s-‐Ship-‐from-‐Store-‐Lowers-‐Cost%2C-‐Increases-‐Speed88521>.
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Appendix 1A
34
Appendix 1B
