The Sports Authority aims for $5B in sales, 500 stores by year 2000 - includes article on Nike Shops in Sports Authority stores - Company Profile

Discount Store News,  July 17, 1995  by Richard Halverson

Tags: Nike Inc., sales, Y2K

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FORT LAUDERDALE, FLA. - Already the nations' largest sporting goods chain, The Sports Authority will easily join the billion dollar sales club in '95, just eight years after chairman and ceo Jack Smith founded the chain.

Looking ahead to the year 2000, Smith predicts the company will be doing $5 billion per year in business and projects that it eventually will operate 500 stores in the United States alone, to say nothing about international operations.

Moreover, Smith is out to prove to the industry that his expansion isn't dependent on the deep pockets of Kmart and can finance growth of about 30 stores this year (on top of 107 in operation at the beginning of '95) out of operating cash flow - and without showing more than a smidgen of long-term debt on his balance sheet.

Kmart bought the chain in 1990 - when it operated 19 stores - from Smith and fellow investors for about $100 million and already has made an after-tax profit of $48 million in taking the chain public last November. Kmart retains a 29.1% stake valued at about $123 million. Deducting the equity it still carries on its books, Kmart could make a pretax profit of about $50 million if it were to sell the remaining shares at today's price.

"The Sports Authority was tremendously profitable for Kmart," Smith said. In addition, the deal was tremendously profitable for Smith, whose 1.5% stake in the company is worth about $5 million.

A big chunk of this year's growth could depend on bankruptcy court approval of The Sports Authority's $45 million bid to buy 16 of the 23 SportsTown stores out of bankruptcy, along with the chain's liquidation inventory.

Oshman's muddied the waters by offering to bid as much as $60 million for the entire chain, including the seven stores The Sports Authority rejected. A court decision on approval is pending. Smith dismisses the Oshman's court motion as "saber rattling."

"Where does Oshman's get off bidding for the SportsTowm stores?" Smith asked rhetorically with his characteristic bluntness. "It hasn't been making money for years and has enough trouble running its own business."

If the SportsTown store purchases go through, it would give The Sports Authority instant entry into an important new state market, Texas, including eight stores in Dallas, as well a a greater presence in Atlanta, SportsTown's home market.

On the international front, in early August, The Sport Authority will open its first four Canadian stores in Toronto and will follow with four more in November or early '96.

Looking abroad, The Sports Authority formed a joint venture last year to open stores in Japan with Jusco, that country's third largest retailer. The venture has already secured sites for an undisclosed number of stores, starting with Tokyo, in '96, and is now undertaking the arduous process of securing permits.

The Sports Authority holds a 51% controlling interest in the joint venture, while Jusco has 10% invested in The Sports Authority.

"We also are looking at the United Kingdom," Smith said.

The Japanese and Canadian stores will be the traditional size, a maximum of 42,500 sq. ft. The main difference in the Japanese stores will be smaller apparel sizes, Smith said.

Although other chains, such as Gart Brothers and Oshman's, are opening behemoths of 75,000 sq. ft. and more, The Sports Authority will hold to its upper limit on size, Smith said, and instead is working to make better use of the cube through what it calls ladder fixtures in apparel. The new ladder fixtures, now going into all stores, permit higher displays than the standard gondolas they are replacing (see story on page 19).

The Sports Authority has developed a smaller prototype of 25,000 sq. ft. for use in secondary markets and in urban markets such as New York and Chicago, where real estate is especially costly.

The smaller prototype will carry the same categories and mix of about 45,000 skus as the full-size stories, but in lesser quantities.

The Sports Authority plans to begin testing its smaller prototype in Miami by the end of the summer.

Sales per square foot, $220 in '94, have been essentially flat and even the past four years, underscoring Smith's determination to hold the size of his big boxes - and even to test smaller boxes - as he squeezes better use out of the existing cube.

Most of the The Sports Authority's units are clustered along the East and West Coasts, although it opened four stores last year in an important Midwestern market, Chicago. And it is opening a number of units in the Southwest as it moves toward national status. Since it operates no distribution centers and vendors drop ship to each store, the chain is not bound to distribution center patterns when siting new units.

About 185 vendors operate under an EDI system that covers 60% of its dollar volume. (A satellite system links each store with headquarters,) To make sure The Sports Authority stays in stock, vendors operate under automatic replenishment orders for 25% of active assortment and as high as 50% for high-volume markets.