When was the last time you sought out an Eastern Mountain Sports (EMS) store?
For most shoppers, it’s been a while. Vestis Retail Group, which owns the chains EMS, Bob’s Stores and Sport Chalet, is preparing to file for bankruptcy, according to Bloomberg. The retail group is private-equity owned by Versa Capital Management. Versa did not confirm the report and had no comment, but Vestis sent Yahoo Finance this statement: “Vestis continually looks for opportunities to position its stores for long-term growth and success and, as such, is evaluating a number of strategies to strengthen the business. We will share additional updates as and when decisions are made.”
If the report is true, it would come as no surprise. In the past year, City Sports and Sports Authority both filed for bankruptcy; the former closed all its stores, the latter closed 140. Of course, EMS is a little different from Sports Authority or City Sports; it is more broadly oriented towards the outdoors and not strictly sports. But all of these chains carry apparel and equipment from many different brands, so they all face a similar fate. And single-brand stores aren’t safe, either: Quiksilver filed for bankruptcy this past fall.
So, what the heck is happening?
Brick-and-mortar sporting goods retailers are in a death march, but not all of them, and not only for the reason you’d think. Here are three reasons big-box sports retail chains are flailing.
1. The Internet
This is the reason you’d think of first, and it isn’t a new challenge, but it’s still hurting existing giants. Chains like EMS failed to adequately adapt early enough to the web by prioritizing their online stores, and if any of these chains has any chance of surviving after the culling that is about to come, they need to wake up. “They’ve got to migrate their audience, their loyal customers, online, and build that e-commerce capability up,” financial strategist Mark Martiak of Premier Wealth First Allied Securities said in an interview on Yahoo Finance Midday Movers (see video above). For a long time in the footwear industry, for example, the narrative was that Zappos was the big scary disruptor, offering such good service and shipping policies that people were buying online instead of from a shoe store. But now the premier sports brands themselves have also optimized their online experience, and are also cutting into shoe sales from chains. Nike and Adidas both have flashy options for customizing your own sneakers online. They saw the brick-and-mortar decline coming, and adapted. Big box chains didn’t. If you ask Patrick Connolly, an analyst at ABI Research, the battle is already over, and brick-and-mortar lost. Now, for some stores to survive, Connolly said in a note last month, “All retailers must become omnichannel and harness the power of the smartphone by developing next-generation, personalized experiences."
2. Too many stores, in non-strategic locations
When City Sports, a chain much loved on the East Coast, announced last fall that it would close all 26 of its locations, its CEO specifically blamed the chain’s move into the suburbs. He cited stores in Manhasset, N.Y., and Rockville, M.D., as examples, and in hindsight, it’s easy to see why those were foolish investments. At a time when even stores in urban areas are seeing declining foot traffic, stores in suburban areas may be doomed. City Sports’ suburban stores “really fell short of their anticipated volume,” CEO Marty Hanaka told The Boston Globe. In the ‘90s, as chains were growing, many of them opened too many new stores, and got bloated; now they’re slimming back down, but for many, it’s too late to stay alive.
3. Bigger faith in big-name brands
Not all brick-and-mortar sports stores are dying. Nike (NKE), Adidas (ADDYY), and Under Armour (UA) have had some success with their official brand stores, suggesting that even amid a migration of shoppers to the web, there’s increasing faith in a few elite sports brands. Those three have smart, advanced online shopping hubs, but they’ve also rolled out small ways to keep incentivizing customers to go into a brand store. For example, Nike’s flashy new Nike+ app, launching in June, gives customers their own designated QR code that lets them cut the line in-store and check out more quickly. These brand stores also have the advantage of focus. If you walk into a Nike store, you know what will be inside: Nike gear. EMS and, to name one of its peers, REI, are like broad buckets that carry a wide range of different products, from kayaks to hiking boots to fishing rods. In brick-and-mortar retail's future, it may turn out that broad is bad, and only official brand stores and smaller, niche chains can thrive.
Bankruptcy doesn’t have to mean the end for EMS; it’s one strategy. City Sports closed all its stores, but Sports Authority closed 140, and just this week settled a dispute with angry vendors over $85 million worth of winter merchandise. The settlement puts a stop to 160 different lawsuits.
The pressure turns now to Versa Capital, the private equity firm, which has a reputation for success with turning around ailing businesses. It acquired EMS, Bob’s Stores and Sport Chalet, in separate deals, all within the last five years. It clearly wasn't able to stop the bleeding. Now, in the short run, it will likely close a ton of stores (EMS has 61) and initiate layoffs. In the longer term, if it wants to keep any of these chains in business, it will need to invest in digital marketing and e-commerce. It will need to get hip to today’s sports merchandise buyer-- fast.
Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology.