Dick’s Sporting Goods’ Edward Stack on the vision and importance of ‘House of Sport’

Key Concepts

• House of Sport: A new retail concept by Dick's Sporting Goods designed to be the "store of the future."
• Store of the Future: A concept developed by Dick's Sporting Goods to reimagine retail, focusing on differentiation and consumer needs.
• North Star: The guiding principle for developing the House of Sport concept, which was to create a store that would put competitors out of business if they replicated it.
• Omni Basis: Refers to the combined performance of a store across both physical and online channels.
• AUR (Average Unit Retail): The average selling price of a unit sold.
• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A measure of a company's operating performance.
• Foot Locker Acquisition: A recent strategic acquisition by Dick's Sporting Goods aimed at strengthening their position in the footwear market.
• Youth Sports: A growing sector with increased participation and associated costs, presenting an opportunity for retailers.
• Innovation in Sport: The continuous development of new and improved sports equipment and apparel, driving consumer demand.

House of Sport: The Future of Retail

Concept and Evolution

The House of Sport concept was initiated approximately nine years ago with the goal of designing the "store of the future." An initial attempt involved building prototypes in a 25,000 square foot office space. However, upon review, the concept was deemed not different enough from existing Dick's Sporting Goods stores. This led to a reevaluation and a restart of the project roughly six years ago. The core objective of this renewed effort was to create a retail concept that would significantly differentiate Dick's Sporting Goods from its competitors, to the point where a competitor replicating it would lead to Dick's business failure. This guiding principle, referred to as the "north star," was central to the development of the House of Sport.

Real-World Application and Expansion

The first House of Sport store was opened in Rochester, New York. The concept has proven successful, with plans to expand to 35 locations by the end of the current year and an ambitious target of 75 to 100 stores by the end of 2028.

Store Format and Location Strategy

Most House of Sport locations are situated in former department store spaces, typically in A and B malls. These are often old Sears, Lord & Taylor, or Nordstrom buildings that have been stripped down to the studs and completely rebuilt. This strategy is beneficial for mall developers, as it revitalizes vacant anchor spaces, attracts traffic, and helps lease surrounding areas that may have been underperforming. While some fear investing in malls, Dick's Sporting Goods has found success by occupying anchor positions in solid, albeit sometimes vacant, mall spaces, rather than attempting to redevelop struggling malls. In some cases, the entire building is demolished and a new structure is erected.

Size and Scale

House of Sport stores are significantly larger than traditional Dick's Sporting Goods stores. While a traditional store is approximately 50,000 square feet and often on two levels, House of Sport locations are typically between 120,000 and 150,000 square feet. This expansion allows for a broader selection and more immersive experiences.

Common DNA and Differentiating Features

Although not identical due to varying building sizes, all House of Sport stores share a common "DNA." Key features include:

• Climbing Wall: For children's recreational use.
• Indoor Field: This versatile space can be used for sports practice and, in northern markets, is converted into an ice skating rink for hockey teams and community skates.
• Advanced Fitting Technology: Including equipment for golf club fitting.
• Batting Cage/Sport Cage: For baseball and softball practice.
• Expansive Footwear Department: Approximately 9,000 square feet, excluding the "House of Cleats" section. This is a substantial increase from the 3,500 square feet dedicated to footwear in traditional stores. The selection covers a wide range of categories including basketball, running, and lifestyle, for men, women, and children.

Brand Strategy and Differentiation

The unique and differentiated nature of House of Sport has attracted brands that may not have had the space or inclination to be in traditional Dick's Sporting Goods stores. Examples include Vley and Steo. Notably, Dick's Sporting Goods will be the first US retailer to carry Gym Shark in a House of Sport location. This strategy allows them to offer a distinct product assortment that sets them apart from both other Dick's stores and other retailers in the market.

Financial Performance and Market Strategy

Contrary to the trend of retailers downsizing, Dick's Sporting Goods has found success with its larger format. A traditional House of Sport store, on an omni basis, is projected to generate over $35 million in sales with an EBITDA of approximately 20%. This indicates high productivity. The company has also discovered that they can successfully place more of these large stores in a given market and can even succeed in smaller markets than initially anticipated.

Foot Locker Acquisition

The acquisition of Foot Locker, which closed on September 8th, is a significant strategic move for Dick's Sporting Goods. The company is optimistic about the opportunities this presents in the United States, as well as in the Americas and Asia-Pacific regions. Foot Locker had reportedly "lost its way" due to various factors, including Nike's distribution strategy and shifts in the sneaker industry. Despite initial negative market reactions, with the stock dropping significantly, Dick's Sporting Goods views this acquisition as a long-term, "lifetime" investment, aligning with their philosophy of making decisions for the future rather than short-term gains. They believe that footwear is the "engine that pulls the train," and this acquisition, combined with their existing House of Sport strategy, will strengthen their position in the footwear business.

Youth Sports and Innovation

The growth in youth sports participation and the increasing costs associated with it have been a contributing factor to Dick's Sporting Goods' success. The company helps families outfit their children for sports. The innovation in sports equipment, including footwear and apparel, is a key driver. Athletes and parents are willing to invest in the best opportunities for their children's success and performance. While consumers may be experiencing financial stress, Dick's Sporting Goods continues to attract them by offering innovative products and delivering them through innovative retail experiences.

Conclusion

The House of Sport represents a bold and successful reimagining of retail for Dick's Sporting Goods. By investing in larger, more experiential stores, expanding their brand partnerships, and making strategic acquisitions like Foot Locker, the company is positioning itself for continued growth and differentiation in the evolving sports retail landscape. The focus on innovation, consumer needs, and long-term vision has been instrumental in their success.