Big V Sporting: Weak E-Commerce Presence Is A Headwind

Consumer purchase of sporting goods in the U.S. has grown over 18% from 2010 to 2014 and is expected to breach the $64 billion mark in 2015. However, during the same period, Big V Sporting Goods’ (BGFV) top-line growth has been almost half at just over 9%.

Clearly, the company’s top-line growth is not impressive as compared to the overall market growth. However, this isn’t surprising as the sporting goods retailer lacks a serious effort on its e-commerce initiative.

Online shopping has been growing at a great speed, and Big V hasn’t taken the right steps to benefit from this trend. As a result of the company’s laidback efforts, sales haven’t grown as fast as the market.

What makes matters worse is that the company’s management has still not realized the problem. We saw a half-hearted launch of an e-commerce channel in the middle of the fourth quarter of fiscal 2014. During a Q&A session of 1Q2015 earnings call, Steve Miller, President & CEO said:

“We are certainly hoping to avoid lots of the growing pains that others have experienced. Just to recap, we launched our e-commerce site in the middle of the Q4, the time with the limited selection of our existing products.

We didn't expect that e-commerce to be a game changer for our business and it hasn’t been a game changer but for 2015, again we don't expect e-commerce to be material to either sales or income, what our focus in e-commerce was certainly to create another sales channel for our customer, we’ve done that now and we’re evaluating and measuring the initial customer response.”

To me, this looks like a very defensive maneuver, and this may weigh heavily against capturing market share. The company will likely lose market share to peers like Cabela’s (CAB), Dick's Sporting (DKS), Hibbett Sports (HIBB) and others.

Why e-commerce sales channel is important

In 2013, the online shop and mail-order sales in the sporting goods industry stood at $ 9.7 billion with over 80% of this coming from e-commerce channel. Over the period from 2004 to 2013, sporting goods e-commerce sales channel registered a growth of over 448% while the consolidated online sales and mail-ordering recorded 172% growth. This shows that e-commerce channel is growing at a rapid speed in the overall non-store based sales.

Additionally, online sales presence enables a retailer to address a market where they don’t even have a physical store. Opening new stores in unrepresented regions, growing by way of comps growth is going to be a slow and capital intensive path to growth. It’s not surprising that Big V plans to open ten net new stores in fiscal 2015.

A tightly integrated advanced e-commerce platform also lets the organization understand the buying behavior of shoppers. Also, in combination with robust data analytics the company can tweak the e-commerce website to align with the buying behavior and also convert guest visitors to buyers. This process is a lot cheaper than remodeling stores across the chain.

So, clearly Big V will be missing on the sales opportunities while peers with a strong online presence will be lapping it up happily. In this event, Big V also stands a chance of losing market share to its competitors. Dick’s Sporting, for example, has a very clear vision of its e-commerce initiative till 2017. Being the second largest (Wal-Mart ranks first) in the segment, it has the financial muscle to elbow out smaller players in the market.

Conclusion

Sporting apparel and goods industry is expected to breach $64 billion in sales this year. However, Big V lacks the much needed strong e-commerce push and is playing out very defensively. Whether or not this is going to change with the new board in place is something that we will only know in future. But, as of now, its weak presence in the online sales channel, versus its peers in the industry, is a headwind that investors need to consider.

Published on Sep 16, 2015
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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