Sport Chalet and Ideas on the Retail Environment

I don’t follow Sport Chalet closely. But they said something in their 10Q for the December 29th quarter that related to some other ideas I’d seen on how the retail market is changing. I thought they might be worth talking about together.

Sport Chalet’s Dilemma
Sport Chalet operates 52 stores, 34 of which are in Southern California. “These stores,” we’re told, “average approximately 41,000 square feet in size. Our stores offer over 50 specialty services for the Sport enthusiast, including online same day delivery, climbing, backcountry skiing, ski mountaineering, avalanche education, and mountain trekking instruction, car rack installation, snowboard and ski rental and repair, Scuba training and certification, Scuba boat charters, team sales, gait analysis, baseball/softball glove steaming and lacing, racquet stringing, and bicycle tune-up and repair.”
Founded in 1959, Sport Chalet was to have “A focus on providing quality merchandise with outstanding customer service…The goal was: to ‘see things through the eyes of the customer;’ to ‘do a thousand things a little bit better;’ to focus on ‘not being the biggest, but the best;’ to ‘be the image of an athlete;’ and to ‘create ease of shopping.’”
Well, if that was their goal in 1959 they were ahead of their time. I’m sure you’ve recognized that what they describe fits very well with the conventional wisdom of what a specialty retailer has to do today to compete.
 When the economy went south in 2007, things got tough for Sport Chalet, especially since most of their business was in Southern California.
“As a result, our sales, which are largely dependent on the level of consumer spending in the geographic regions surrounding our stores, declined and we incurred substantial losses. In response, we modified our business model to make the Company more efficient, improved our liquidity and reduced operating expenses during the downturn. Additionally, we reinforced our commitment to be first to market with performance, technology and lifestyle merchandise by expanding our specialty brands and continuing to emphasize the availability and proficiency of our sales staff while many of our competitors emphasized value pricing and severely reduced store staffing.”
You can see that they tried what I’ve characterized in other articles as “more of the same.” Again, it’s all the things that are supposed to let the specialty retailer compete. It seemed to start to work, and then it didn’t. For the nine months ended December 29, 2013, Sport Chalet lost $4.4 million on revenue of $264 million.
So they are “…renewing our focus on reducing costs and refining our inventory position and store strategy. We are reducing our costs by decreasing store and corporate office labor expense to align with current sales trends, cutting IT maintenance expenses in non-critical areas, switching to a more cost effective logistics provider, negotiating rent reductions and honing our customer satisfaction initiatives. Through the closure of underperforming stores, selected staff reductions, and the renegotiation of logistics and software contracts, we have reduced our annualized operating expenses by approximately $3.2 million.”
But things are still tough. They blame poor early season winter weather and are working with vendors to manage inventory levels (something every vendor loves to hear) and closing four stores.
As I see it, the strategy they have historically based their competitive strategy on requires high spending levels and high prices. They are trying some new strategies; next generation store format, online store growth, leveraging technology and data, mobile and digital leadership, and local marketing programs. They just list those in the 10Q- there are no specifics provided.
On the surface, none of those sound like bad ideas, but I’m not sure they can expect to have the financial ability to carry them through if consumer spending trends continue. Too many of their customers can’t afford to buy what they want to sell or, if they can afford it, can’t see any reason to pay the Sport Chalet price for it.
In spite of a business strategy we’d all tend to agree seems right for the independent specialty retailer, they are caught between a rock and a hard place. What’s going on?
Nordstrom’s Bar
Here’s a picture of the new bar they’ve opened at Nordstrom’s in the local mall. Notice the crowd at it
It’s big and takes up a lot of space. Space where I wonder if they wouldn’t be better off having merchandise. I don’t quite know what their concept is. Maybe it’s for husbands whose wives are shopping. That won’t work for me because my wife considers me a huge downer to have along when she’s shopping. I’m sort of like a six year old in the back seat of a car during a long trip constantly saying, “Are we done yet?” My mere presence in the vicinity ruins the experience.
I am all for retailers taking risks and trying new things. Some work, some don’t and you always learn something. I’m sure Nordstrom’s thought it out carefully and, perhaps unlike Sport Chalet, they can afford to experiment. But there’s almost a sense to it of not knowing what else to do as the retail environment changes faster than we can keep up.
That’s not completely a surprise. This country was well over retailed even before the internet came along. However, increasing debt and leverage managed to masquerade as real economic growth until 2007 and covered that up. Now, retailers are struggling to hold on to their piece of the pie.
How Big Is Online?
I was sent a Wall Street Journal article I can’t seem to get access to called “Online Shopping is Big. It’s Also Tiny.” It points out that among the major consumer segments, online sales are no more than 25% of the total. It only gets to 25% in the computers, electronics and appliances sector. That sector, in total (store and online combined) is $272 billion annually. Making the online part $68 billion. In toys and sporting goods online is “only” 12% of $128 billion in annual sales. It’s just 1% of the $884 billion food and alcohol market.
Still it’s gotten there in a little less than 20 years and while figuring out the future isn’t my strong point, I’m pretty sure we can expect some more online sales growth in most, and probably all, categories.
But what exactly does “online shopping” mean? Are you only shopping online if you research, select and order the product on a computer or some mobile device? If you go to a store but then order online from the retailer you visited, is that online? What about if you go to the store and the sales person orders it online for you after you’ve chosen and has it delivered to your house the next day?
The data from the Wall Street Journal isn’t broken down that way, but I know retailers are pondering the issue. How online relates to brick in mortar is something we’d all like to know more about.
What Does Walmart Think?
The Atlantic magazine, in its current issue, features a short interview with Walmart’s Senior Vice President for Mobile and Digital, Gibu Thomas. It’s called “Get Ready to Roboshop” and you can read it here.
Mr. Thomas has 1,500 people trying to figure out just exactly how on line and in store retailing are going to fit together. He projects U.S. on lines sales to be around $345 billion by 2016. But he thinks “mobile influenced offline sales,” as he calls them, will be $700 billion. Walmart apparently has a smart phone app that, if you allow it, will help guide your shopping experience in Walmart. He says that more than 75% of their customers under 35 have a smart phone. During the past holiday season, more than half the traffic to came from mobile devices.
So go read the interview. There was certainly some learning here for me. It seems like we shouldn’t worry about on line sales. They are here to stay, are going to grow, and there’s nothing we can do about it. Where retailers’ attention should apparently be focused is on integrating the brick and mortar and mobile device experience. I knew that, but seeing some numbers attached to it gives me some focus and sense of urgency. It appears I’d better get my web site working better with mobile devices.
My sense is that this approach might be particularly beneficial to Sport Chalet as a high end chain with fairly well to do customers (you aren’t poor if you’re planning a scuba trip). There may be an app in every retailer’s future. I think I’ll download the Walmart app and walk through one of their stores.