A Strategic Analysis of Dick’s Sporting Goods PDF

Preview

Summary

Dr. Sariol Final Project. Analysis of Dicks Sporting Goods....

Description

!

! ! ! !

! ! ! ! ! ! ! A Strategic Analysis of Dick’s Sporting Goods Group 18: Zach Geerdes, Noah Holthaus, Derek Weibers, Billy Lee, and Alex Gray BADM 482-U015 4/10/2018

!

!

2 TABLE OF CONTENTS

A Brief History……………………………………………………………………….... 3 The Mission……………………………………………………………………………..3 The Vision……………………………………………………………………………....4 External Environmental Analysis…………………………………………………….4 Political……………………………………………………………………….....5 Economic………………………………………………………………………..5 Social……………………………………………………………………………6 Technological…………………………………………………………………...7 Ecological……………………………………………………………………….7 Legal…………………………………………………………………………….7 Porters Five Forces……………………………………………………………………8 Threat of New Entrants…………………………………………………………8 Threat of Substitutes……………………………………………………………8 Buyer Power……………………………………………………………………9 Supplier Power……………………………………………………………….....9 Existing Rivalry………………………………………………………………..10 Opportunities…………………………………………………………………..11 Threats…………………………………………………………………………11 Internal Company Analysis………………………………………………………….11 Strengths……………………………………………………………………….11 Weakness………………………………………………………………………12 Company Strategy……………………………………………………………………13 Corporate………………………………………………………………………13 Business………………………………………………………………………..13 Overall Evaluation……………………………………………………………………14 Recommendations…………………………………………………………………14-17 Citation Page………………………………………………………………………18-19

!

!

3

A Brief History Dick’s Sporting Goods’ rise to corporate leadership is a very “American-Dream” like story. In 1948 when Dick Stack was 18 he was asked by his boss to evaluate what kind of products the company would need to get into the fish and tackle industry. When Dick attempted to tell his boss what to buy, his boss told him he was wrong and ignored his efforts. Dick promptly quit, and with a $300 loan from his grandma he opened his own bait and tackle shop. By 1958 his shop had taken the name Dicks Sporting Goods. Fast-forward to current day and Dicks Sporting Goods is the largest sporting good retailer in the nation with just 610 stores in 47 states nationwide. Dick’s is only in the United States at this time. Aside from Dick’s main store operations, they also own Golf Galaxy, Blue Sombrero, True Runner, Chelsea Collective, and Field & Stream. (“About Us” 2018) These subsidiary companies have allowed Dick’s to expand into different markets and strengthen their market share in others.

The Mission Dick’s Sporting Goods’ mission statement: “ Is to be recognized by our customers as the #1 sports and fitness specialty omni-channel that serves and inspires athletes and outdoor enthusiasts to achieve their personal best through the relentless improvement of everything we do.” (“About Us” 2018) As seen in the company mission statement they want to be recognized as #1. Considering that the company is the largest sporting good retailer in the nation we believe that Dick’s has fulfilled their mission to this point. Dick’s mission statement also addresses the idea of inspiring athletes. We would argue that through celebrity athlete endorsements in their commercials they inspire athletes of all ages to try their apparel/equipment and simultaneously continue playing the sport

!

!

4

related to that apparel/equipment. Mission statements, while brief, serve as the overall goal for all employees of Dick’s Sporting Goods to strive for. This particular mission statement allows for continuous strives towards being the best in the industry.

The Vision “At Dick's Sporting Goods, each member of our winning team is connected through a common belief and passion for our Core Values: Driven, Committed, Skilled, and Passionate. We play to win. We believe in relentless improvement. We are focused, and precise. We live for our sport, our team, and our community. At Dick's, we believe in a better world through sports. This belief has been at the heart of our winning culture since the very beginning. Dick Stack, founder of Dick's Sporting Goods, believed that sports play a vital role in teaching our children fundamental values like a strong work ethic, teamwork and good sportsmanship. And, he understood that supporting the organizations that make youth sports possible is the best way to promote those values. Today, that legacy continues, with Dicks Sporting Goods strongly supporting youth sports in the communities where we live, work and play.” (“About Us” 2018) We had some trouble locating their vision statement but ultimately concluded that this was their vision statement. We believe that this vision statement demonstrates how they intend on reaching their mission, by following their core values and always improving. While this vision statement is solid and reminds everyone what Dick’s is all about, we believe that it lacks the visionary aspect that a good vision statement should achieve. External Environmental Analysis

Political

!

!

5

The first political factor would be changing tax rates if people are taxed at a higher rate they will have less discretionary income, since Dick’s products are almost all non-need products this could be a threat to their sales level. It’s unlikely that a tax rate change would be drastic enough to heavily impact Dick’s sales, however it could happen. It could also happen the other way, where tax rates decline or more tax deductions are accepted and people have more excess cash ready for spending. The second political factor deals with minimum wage rates increasing. If minimum wage rates increase it would most likely mean one of two things for Dick’s. One, they pay the higher wages with the same amount of employees and take a higher wages expense, hurting their profits. Or they staff less employees per hour and have to deal with even less personal customer service in store, which is already one of their weaknesses being a large corporation.

Economic Similar to what was mentioned in the political section, Dick’s products are expensive and in a recession or depression economic cycle, consumers may be content with taking the cheaper alternative at Wal-Mart to save some money since Wal-Mart’s business strategy is cost leadership. Building off that, people may also be content with using equipment for a longer period of time rather than getting the “latest and greatest” new equipment or apparel. The second economic factor is companies like Amazon bolstering e-commerce. It is no secret that Amazon often has lower prices than stores that rely on differentiation tactics, and according to a 2016 study done by the Pew Research Center “65% of Americans indicate that when they need to make purchases they typically compare the price they can get in stores with the price they can get online and choose whichever is cheapest. (Smith & Anderson,2016) While in-store

!

!

6

shopping is still very popular, online shopping does provide a very convenient way to get your shopping done very quickly. It is important to note that Dick’s has a very high functioning online store. But if someone is searching for an item online, and they aren’t sure what website/online store would carry the item they are looking for don’t you think they would start at the store that is notorious for having everything?

Social There are some external social factors that actually help Dick’s. For example, professional athletes such as LeBron, Kobe, and Jordan who are constantly releasing new additions of shoes put pressure on people year in and year out to buy the latest apparel. This kind of social conformity and need to fit in logic helps Dick’s sell higher priced apparel on a regular basis. The second external social factor that may harm some of Dick’s football equipment and apparel sales are the constant studies on concussions and brain damage in football. It has been no secret as of late that there is a link between football collisions and Chronic Traumatic Encephalopathy (CTE). This disease is caused by repetitive hits to the head, which is where football comes in. This disease could potentially cause parents to push their kids away from the sport which could in-turn cause Dick’s to lose out on equipment and apparel sales. Another social factor working in Dick’s favor is the general consensus of the public is to want to be healthier. Since Dick’s sells a lot of fitness clothing people may consider buying their products in order to perform workouts. Haven’t you ever bought a fitness machine or weights thinking you were going to use them and now they are in a dusty corner?

Technological

!

!

7

Advancements in virtual reality could pose some sort of minor threat to sports equipment sales if people become content with playing virtual reality sports over physical sports. However, virtual reality is still an upcoming product and it’s hard to recognize the full potential. We don’t believe that this is a very big threat against Dick’s but it is something to consider as technology grows. The second technological factor against Dick’s is that an increase in online stores will definitely lower the capital requirement to get into the market. Less brick and mortar stores means a lower capital requirement to get into the market. If a company can some how compete with solely internet sales that would be extremely harmful to Dick’s bottom line.

Ecological Ecological factors for Dick’s are pretty minimal. One potential ecological factor is the push towards being more “green.” It seems that Dick’s really doesn’t have any “green” movements in their corporation. This isn’t really hurting them but if they considered adding one it could potentially make them look better in the public eye. Legal There aren’t many external legal factors with Dick’s; one could potentially be the pressure to get rid of gun sales with recent shootings. Dick’s is actually in the process of stopping the sale of guns due to this. (Siegel,2018) This was a very controversial move however Dick’s felt like action was required.

Porter’s Five Forces Threat of New Entrants

!

!

8

Low. The market is fairly saturated with Wal-Mart taking a cost leadership approach no new company could come in and offer lower cost products and still maintain a feasible profit margin. Which means to enter the market they would need to either take a hybrid approach, or a differentiation approach. Dick’s is one of the leading differentiating sports retail companies in the market. They offer top products at moderate to high prices, which comes off as a hybrid approach with a focus on differentiation. This means that the only true area to enter the market would be at an extreme differentiation spot. This would most likely result in higher prices, essentially the opposite of Wal-Mart. Looking at the top competitors in the sports retail market they are all very widespread fortune 500 companies, a new entry would need a lot of capital to grow to a size that would compete with Dick’s Sporting Goods.

Threat of Substitutes Moderate. Dick’s sells a plethora of merchandise, and its important to look at the threat of substitutes from every angle. If one looks at the threat of substitutes for sporting equipment, virtual reality ( VR) could pose a very real threat to sporting goods equipment sales. As VR machines become more and more common the technology will only increase making the experience feel more and more real. The cost of initially buying a VR system can be fairly high, however you don’t have to continually buy equipment year over year for VR like you do for sports equipment, which means that the costs could potentially even off. Another aspect of technology substitutes would be video games, Esports are becoming increasingly popular and now NBA, NFL and MLB teams are getting involved in hiring players to compete for their teams on gaming consoles. (Sarkar,2018) Will ESports and VR ever take over physical sports? Highly doubtful, but increasing popularity in the two could potentially result in lower sporting goods sales.

!

!

9

As far as sporting apparel there is very little that can be substituted, nobody wants to work out in jeans, dresses, suits, etc. so sporting apparel will remain a solid seller in the industry. However, within the industry there are many substitutes. For example someone can go buy much cheaper sporting apparel at Wal-Mart than they can at Dick’s.

Buyer Power Low. Since Dick’s is essentially a marketplace that sells other brands products. The suppliers have high power, they get to dictate the lowest price that Dick’s can sell products in it’s store while still making a profit. Which means the consumers don’t get much of a say in what the prices are at Dick’s because Dick’s has to adhere to the prices that the big suppliers set.

Supplier Power High. Dick’s Sporting Good’s buys a lot of apparel from suppliers such as: Nike, Under Armour, and Adidas. These companies are very large suppliers and can essentially name their price when they are selling their goods to retailers. Dick’s does offer some products that are made under the name Second Skin and Calia. Second Skin is owned by Dick’s and seems like an attempt to lower their vulnerability to supplier power.( Green, 2017) Second Skins sells products that are very similar to Under Armour. This brand is fairly new and not significant enough to lower supplier power as it currently stands. The second brand of products is called Calia, this brand in a partnership with Dick’s it is exclusively sold at Dick’s and is a big contributor to the $1 billion “in house brand” sales, this could be a brand that Dick’s may consider purchasing and produce in house. Increasing Dick’s own brand of apparel is one aspect that we believe Dick’s could

!

!

10

improve in their business to lower their vulnerability to middle men suppliers and large suppliers against Dick’s profit margin.

Existing Rivalry Moderate/High. Currently the company that sells the highest amount of sporting goods in revenue is Wal-Mart. This number is based off an estimation from a statiscbrain.com research survey, where they estimated that 2.5% of Wal-Mart’s revenue is from Sport & Fitness Sales. If this is true some quick math using Wal-Mart’s 10k numbers would show us that Wal-Mart has about $11.2 bn in Sports & Fitness sales (495bn x 2.5%). If you compare this with Dick’s Sporting Goods 10k you will see that Dick’s has about $8.5 bn in total sales. However, Dick’s Sporting Goods is easily the highest revenue earning company that specializes in solely sporting goods and equipment. It should come as no surprise that Wal-Mart is the highest revenue earner of the sporting goods market. Wal-Mart’s low prices are very appealing, especially for parents who are trying to gauge interest in particular sports for their young children. Parents don’t want to invest in higher priced equipment if they are unsure of their kids’ interest in the sport. There are also some smaller sporting goods companies like Sports Authority. Sports Authority is significantly smaller than Dicks Sporting Goods, however they offer very similar products to Dick’s Sporting Goods. Another huge competitor are the brands themselves, for example: Under Armour, Nike, Adidas. All these companies have their own websites, which sell everything that Dick’s sells and then some. There has been some recent news that Nike and Amazon may be working on a partnership to sell with each other, thus cutting out Dick’s from the entire operation.

!

!

11

Opportunities Acquiring smaller competition in regional locations, preferably regions that are lacking Dick’s locations. One opportunity that we identified was to acquire Scheels All Sports, which is a Midwest sports retailer. Acquiring them would allow for more locations as well as less competition in the states that Dick’s is less represented in. This idea is discussed in more depth in our recommendation section. Another opportunity that we have identified is potential strategic partnerships with exclusive retailers. Dick’s has had success with Calia, which is exclusively sold at Dick’s. Expanding product lines that are exclusively sold at Dick’s or at limited retailers could help Dick’s sales and further diversify Dick’s product line.

Threats Dick’s faces the threat of relatively lackluster personal customer service since they are such a wide spread corporation. Locally owned or regional sporting goods stores can afford to have much more personal service. At Scheels the employees have specialties, which allow them to provide personal customer service in every area of the store. Another major threat to Dick’s is their brand lines selling directly to consumer. For example, Nike selling directly to consumers and cutting Dick’s out of the entire operation. Last year Nike confirmed that they are in a partnership with Amazon to sell more on Amazon’s site. (Wattles,2017) Depending on what happens with this partnership it could mean bad news for Dick’s Nike sales in the coming years.

Internal Company Analysis

!

!

12

Strengths Dick’s has a great marketing strategy. They ran very successful campaigns with “Every season starts at Dicks” and “Sports Matter” these were both very successful campaigns at targeting youth programs. Another marketing tactic that Dick’s uses is the Dick’s Team Sport HQ, this service allows Dick’s to get their name out in the youth sports league while simultaneously doing some good for the community. A second strength of Dick’s is that they are the most widespread specialty sporting goods retailcompany in the nation. They have 610 stores in 47 states, and this doesn’t even include their subsidiary company. (“About Us” 2018) Having so many locations allows Dick’s to cover a lot of markets in the United States, and also allows for convenient visits from consumers. A final strength of Dick’s is their ability to react to change in the market. When Dick’s realized some of their brands were under performing they decided to cut them and prepare for better opportunities. (Wahba,2017) Being able to realize and react to current trend in the market is a great thing to have in leadership.

Weaknesses One major internal weakness of Dick’s is that they haven’t done anything to separate themselves for other online retailers. As online shopping continues to grow Dick’s may need to figure out a way to increase its market share on e-commerce. A second weakness is that Dick’s hasn’t done much to get into the technology field. As mentioned they haven’t capitalized on the ESports market which seems to be expanding rapidly.

!

!

13

As with many retailers another weakness is that Dick’s is basically at the mercy of the suppliers for prices. If Nike wants to start charging more for Dick’s to sell their products Dick’s will have to comply with those price hikes. A final weakness is that Dick’s doesn’t have much for its own brand that it manufactures. Dick’s could potentially benefit from creating a moderately priced line of clothing to complement Second Skin sales. This could maybe help eliminate some of their exposure to supplier power Company Strategy Corporate When looking at Dick’s corporate strategy it appears that Dick’s is very limited in the Midwest, however on the eastern half of the United States as well as in California and Texas, Dick’s is widely represented. Dick’s could potentially benefit from acquiring similar firms in the Midwest, for example Scheels. Scheels is regional and is well represented in states that Dick’s isn’t. Another example of corporate strategy is the strategy to expand into life style brands and not just stick with sports brand, realizing a trend in consumers and expanding to a new market was a great strategy for Dick’s.

Business Differentiation of products is their busi...