If you've read anything about retail stocks in the last couple of years, I'm sure you know about show-rooming. For customers, physical retailers are turning into showrooms they use to try out goods, while they then go online to make their purchase. While I know this happens, and I have done it myself, not all industries are affected equally. One retailer that seems to be holding up extremely well is Dicks Sporting Goods Inc (NYSE:DKS).
I've written about this phenomenon before, but the company is proving that their business is different enough to compete effectively with the Amazon.com, Inc. (NASDAQ:AMZN)'s and eBay Inc (NASDAQ:EBAY)'s of the world. In addition, it's not as though Dick's only faces serious competition from online retailers. The company also has to defend its turf against brick-and-mortar stores like Wal-Mart Stores, Inc. (NYSE:WMT) and Foot Locker, Inc. (NYSE:FL) as well.
Walmart wants to be the retailer that everyone shops at, and sporting goods and equipment is standard in every Walmart store. FootLocker operates smaller stores that are more focused on shoes and clothing, compared to the many types of equipment that Dick's offers. There are key elements to why Dick's is so successful. However, before we get to that, let me walk you quickly through the company's last quarterly earnings just to get an idea of how well Dick's is performing.
The company reported revenue up 11.2% and EPS increased 25%. For any retailer in today's economy, these are impressive figures. Possibly even more impressive are Dick's same-store sales, which increased by 5.1%, and eCommerce sales, which were up 36.7%. Considering that Amazon seems to be disrupting every other retailer, how was Dick's able to increase sales not only in store, but online as well?
There are at least three reasons that Dick's seems to be insulated from Amazon or other retailers stealing their business. First, Dick's knows that sometimes it makes more sense to stock the right selection rather than just more. As a quick example, if you look at Dick's web site and search for Under Armour clothing for men, you are presented with 356 choices. With 24 items per page this works out to roughly 15 pages of selections. On Amazon, using this same search you get 1,745 results with 24 per page. To see each item on Amazon means looking at nearly 73 pages. Dick's understands that customers want good choices, but they don't want to be overwhelmed.
The second competitive advantage Dick's possesses is that their business lines are geared to items that customers like to feel, touch, and most importantly try on. My wife has her black belt in shopping, but in most cases she prefers to try on clothing and shoes before buying them. In addition, just because she wears one size in a particular brand, doesn't mean the same size in another brand will fit the same.
It's tough for Amazon to match Dick's or FootLocker's inherent advantage of having multiple sizes in stock that can be tried on one after the other. It might be slightly cheaper to buy shoes or clothes from Amazon. However, it's a pain to go through trying on different sizes, go home, place your order, and wait for a few days to actually get the item. For many people, if it requires effort to find the right item, they would rather buy it and be able to take it home.
Another reason Dick's seems insulated from online competition is their selection when it comes to team sports, and in particular kid's sports. Let's pretend that you have a child starting baseball for the first time. They need cleats, a bat, and a glove. Are you likely to take the child shopping so they can try on their glove, check out the different bats, and make sure the cleats fit? If your other option is to order all of this online you are likely to have to deal with returns, because something won't “feel right” or won't fit. Similar to clothing purchases, if it requires effort to get the right selection, customers will likely buy it in the store.