Sporting Life Inc. was just beginning a major cross-Canada expansion when the upscale retailer faced a roadblock.
It had switched to new computer systems at its third-party warehouse, but the systems weren’t communicating properly with its stores. Hundreds of skis, snowboards, boots, parkas and a host of other products got jammed up in the warehouse outside Toronto, rather than being shipped to Sporting Life’s stores. The glitch was similar to, on a much smaller scale, the snafus suffered by U.S.-based Target Corp. in Canada. Within less than two years of its arrival here, the U.S. retail giant filed for creditors’ protection in 2015 and fled the country.
“It’s not the same as the Target story, but the end result was the same,” said David Russell, Sporting Life’s chief executive officer, of the company’s logistics crisis in the fall of 2015. “Goods were arriving at the warehouse and we couldn’t process them fast enough. … It was difficult. The impact was a slow start to fall.”
Still, the misstep became a valuable lesson about the need for more rigorous supply-chain planning as Sporting Life, under a new controlling shareholder, embarked on a major expansion. The company has moved quickly to more than double its number of stores to 10, and eventually plans to have 20-plus. It’s a decidedly contrarian play in an increasingly crowded retail field in which competitors are scaling back their store counts or size to take on the threat posed by e-commerce giant Amazon.com Inc.
And it isn’t just Amazon in Sporting Life’s crosshairs. Its major suppliers, ranging from luxury parka maker Canada Goose Holdings Inc. to sporting-goods heavyweight Nike Inc., are racing to beef up their own e-commerce and bricks-and-mortar locations.
“My biggest competitors right now are my vendors,” Mr. Russell said. “E-commerce is changing everything.”
Nike, for example, is pushing its own cyberbusiness. “We’re moving closer to the consumer through differentiated retail concepts, leading with our mobile apps, dot-com and digital partners,” Nike CEO Mark Parker told analysts last month.
Even Canadian Tire Corp. Ltd., which owns the country’s largest sporting-goods chains, including Sport Chek, is feeling the heat. Sales growth at its existing stores – a key retail measure – slipped to a 2-per-cent gain in 2017 from 6 per cent the previous year. Under a new leader, the Canadian Tire division, called FGL Sports, is looking at sharpening its focus on “operational effectiveness,” CEO Stephen Wetmore told analysts recently. “At FGL, we continue to see competitive pressure.”
Later this month, France-based Decathlon SA, the world’s largest sporting-goods retailer, will open its first store in Canada as part of a broader expansion. With its low-cost, own-brands strategy, Decathlon could help shake up this market, said Matthew Teeple, sports director at market researcher NPD Group. Meanwhile, outdoor chains MEC (Mountain Equipment Co-op) and SAIL are also in expansion mode.
“We’re seeing a general trend that could cause disruption among the more heritage players,” Mr. Teeple said.
Even so, Sporting Life is operating in a growing Canadian market that saw overall sales of sportswear rise 6 per cent to $6.3-billion and those of athletic footwear soar 13 per cent to $3.3-billion in the year ended Feb. 28, according to NPD.
Still, south of the border, sales in the sporting-goods physical stores sector dropped 8.1 per cent to US$40.7-billion in 2017 amid tough competition, market researcher Euromonitor found. “Consumers are becoming more dependent on their digital devices and mobile phones to browse and make purchases,” Euromonitor senior analyst Ayako Homma said in a blog about the plight of U.S. sporting-goods retailers.
E-commerce is changing everything.— David Russell, CEO of Sporting Life
Mr. Russell said he’s grappling with suppliers that branch out into e-commerce, often stocking the same items as Sporting Life. It was one of Canada Goose’s first merchants, but now the parka producer is rapidly opening its own stores and developing its online presence. Sporting Life still enjoyed healthy sales of the $1,000 Canada Goose jackets this winter, benefiting from frigid weather in parts of the country, Mr. Russell said. “We did great and they did greater.”
Dani Reiss, CEO of Canada Goose, said recently its fourth-quarter store and e-commerce performance was so strong that it ran out of stock in some instances. “We are not afraid to be sold out.”
Mr. Russell can’t afford logistical setbacks such as the one Sporting Life encountered in 2015. For a few months, he personally walked the warehouse once or twice a week making notes of each shipment and which ones needed to be delivered immediately to the stores.
Some inventory took six weeks to move through the distribution centre rather than the usual two days or less. While the chain avoided having empty shelves, its logjam only let up just before Christmas, he said.
“It was an underappreciation of the complexity of logistics for multiple stores and the need for no error,” Mr. Russell said of Sporting Life’s speedy expansion to seven from four stores by 2015. “We now have a much more rigorous process and systems to flow goods through our system. It is night and day.”
When it was all over, his team sat down with its logistics partner and redesigned the supply chain while moving to a bigger warehouse. Sporting Life now approaches other new systems integrations with a deeper understanding of the dangers of poor data, he said. “So it is like you make a mistake, it doesn’t kill you, but it could have, and the experience − though awful and scary − is a really good and timely wake-up call.”
He took other lessons from the expansion, such as the need for leases to allow for at least six reserved parking spots for customers next to the store. In its new Ottawa location, parking is underground and not as convenient, he said.
The turning point for Sporting Life came at the end of 2011 when Fairfax Financial Holdings Ltd. purchased 75 per cent of the retailer to help invest in expanding the business and preparing for a broader retail transformation. Since then, privately held Sporting Life has more than doubled its sales to about $160-million with a goal of about $400-million, Mr. Russell said. With 10 stores now, including two in Calgary, the chain plans another in Montreal this fall and one in Vancouver next year.
He said sales at existing stores are increasing at a low-single-digit rate and the retailer is making a net profit. Its performance this year is stronger than in the past two as a result of good winter weather, which helps sell skis and parkas, he said.
Sporting Life entices customers with sometimes difficult-to-find merchandise, such as a $14,700 Aksovaara three-quarter-length coat handmade from reindeer fur and leather in Finland – all three sold out last year. The retailer is also known for pampering its customers. Soon after its first store opened on Yonge Street in Toronto in 1979, a customer came to return a pair of Nike running shoes, complaining they were defective. Mr. Russell examined the shoes with black soles and explained they were worn out on the sides because they had been used for squash rather than their intended running use. But he agreed to the return and helped the customer find a pair that was made for squash.
Today, Sporting Life’s fastest-growing segment is its e-commerce, which makes up about 15 per cent of its sales and will eventually reach 20 per cent, he said. Amazon and other global retailers are pushing Canadian incumbents to apply more discipline and track inventory by day, hour, product colour and size, he said. “We’re all being judged against Amazon and against those best of breed.
“It’s been maybe expensive and painful but it’s better. It’s forced us to get better.”