Sports Authority is on the injured-reserve list after filing for Chapter 11 bankruptcy protection Wednesday and announcing that it has identified 140 stores that it plans to sell or close over the next three months.
The rough-and-tumble retail environment isn't a place for the faint of heart, and the privately held sporting-goods chain simply has not been able to keep up with such dominating competitors as Dick's Sporting Goods (DKS).
"I think this is will be very good for Dick's Sporting Goods as well as Trifecta Stocks holding Foot Locker (FL)," said Fabian Wealth Strategies portfolio manager Christopher Versace, who co-manages the TheStreet's Trifecta model portfolio. "As we saw when Borders and Circuit City fell, consumers will move to other locations, not forego spending."
Many analysts point to the disruptive nature of online retailer Amazon (AMZN) as being the driving force responsible for the state of retail today. At least 13 major retailers have announced plans to close stores this year. Macy's (M) announced that it would close 36 stores and lay off about 2,500 employees. J.C. Penney (JCP) said that it will close another 47 stores this year after shuttering 40 in 2015. Wal-Mart (WMT) has already closed 154 stores in the U.S. Sears (SHLD) said that it will close at least 50 "unprofitable stores" by the end of this year.
"On my mall walks that allow me to keep tabs on store traffic trends and where consumers are shopping, we could see what was coming at Sports Authority as it closely resembled what we've seen at Sears over the last several quarters: a lack of shoppers, empty shelves and few-and-far-between salespeople. Dick's on the other hand is a complete 180 with new products and a store-in-store concept with Growth Seeker holding Under Armour (UA) and others that customers seem to be flocking to," said Versace, who also co-manages TheStreet's Growth Seeker model portfolio.
Consumers are finding fewer reasons to go to brick-and-mortar stores, according to Versace, and in turn retailers are adjusting their strategies.
"You are seeing retailers make a push online. Expanding their online presence in an attempt to reach consumers in the way that they want to shop," Versace said.
Indeed, in Sports Authority's press release today, the company mentioned its website multiple times. "In addition, you always can find all of our brands at the same great values online at SportsAuthority.com," the release stated. (Sports Authority was purchased by private equity firm Leonard Green & Partners for $1.3 billion in 2006.)
That's not to say that the company's brick-and-mortar competitors won't benefit from the company closing a third of its 450 stores.
About 150 of Sports Authority locations are in the direct vicinity of Dick's Sporting Goods stores, according to Canaccord Genuity analyst Camilo Lyon. In an research note published in January, Lyon estimated that Dick's could add up to $119 million in sales -- assuming a 75% rate of sales recapture -- for every 100 stores Sports Authority closes. In essence, Dick's could see a sales windfall of $179 million from the demise of its rival.
Sports Authority may come out of bankruptcy as a lean, mean, retailing machine -- but it does have some work to do to catch up. Today's retail market makes a late-game comeback an unlikely outcome.