Largest Sporting Goods Retailer May Succumb To Shifting E-Commerce Dominance

Sports Authority Inc. on Wednesday filed for chapter 11 bankruptcy protection and said it would close 140 stores, as the big-box chain struggles with a shift to online shopping.

The retailer, which has about 450 stores, could shut down in the coming weeks unless it finds a buyer for the rest of its business, according to people familiar with the matter.

Sports Authority became one of the largest sporting-good retailers following a merger in 2003, but it has been weighed down with debt from a leveraged buyout a decade ago.

It joins a growing list of superstore operators, including Circuit City Stores and Borders Group, that have filed for bankruptcy. Other chains, such as Macy’s Inc. and Wal-Mart Stores Inc., are adjusting to fewer shopper visits and competition from Amazon.com Inc. by closing dozens of stores this year.

 

The company has $1.1 billion in financial debt, including more than $717 million in bank loans, and about $211 million in trade debt, or debt owed to suppliers, court papers say.

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Sports Authority has “accumulated substantial losses” as sales shifted from traditional brick-and-mortar retailers to online resellers, Chief Financial Officer Jeremy Aguilar said in a court filing. In fiscal year 2015, which ended Jan. 30, 2016, Sports Authority posted before-tax losses of about $156 million on sales of $2.6 billion.

The retailer’s bankruptcy puts the jobs of 5,400 full-time employees and 9,100 part-time employees at risk, according to court papers.

Sports Authority said it has identified about 140 stores and two distribution centers, in Denver and Chicago, that it intends to close or sell in the coming months. The company said it expects most stores to continue in operation throughout the chapter 11 process.

Sports Authority has agreed to take up to $595 million in bankruptcy financing from senior lenders including Bank of America Corp., Wells Fargo & Co., J.P. Morgan Chase & Co. and TPG, the people said.

As a condition of the loan, Sports Authority would close and clear out dozens of stores after filing for chapter 11, some of the people said. The company would need to close the rest of its store base by the end of April if it can’t find a buyer that would put more money into the business, they added.

Sports Authority has been struggling to compete in a crowded sector that includes big-box retailers like Wal-Mart Stores Inc. and Target Corp. Moody’s Investors Service has said bad weather, weak execution, poor margins and high shipping costs have also eaten into Sports Authority’s sales.

Papers filed in the U.S. Bankruptcy Court in Wilmington, Del., show Sports Authority’s big trade creditors include Nike Inc., which is owed $48 million, and Under Armour Inc., owed $23 million. Unsecured mezzanine debt topping $300 million is also reflected in bankruptcy court papers.

Leonard Green & Partners L.P. bought Sports Authority in a $1.3 billion leveraged buyout in 2006. At the time of the buyout, Sports Authority had a larger store footprint than rival Dick’s Sporting Goods Inc. Now Dick’s operates about twice as many stores and has more than double the sales.

Leonard Green is a big investor in the retail sector and also owns stakes in J. Crew Group Inc., David’s Bridal Inc. and BJ’s Wholesale Club Inc.

By

MATT JARZEMSKY and
SARA GERMANO

Walmart and Retailers Struggle

 

Walmart, whose supercenters once transformed the way Americans shop, announced on Friday that it would close a record number of stores in the United States and overseas, as it fights to hold its ground in a retail landscape under siege by the behemoth Amazon.

The giant retailer, based in Bentonville, Ark., said in a statement that it would shutter 154 stores in the United States, or about 3 percent of its locations, as well as 115 stores overseas. It will also end its WalmartExpress small-store format, which failed to catch on in urban areas. As many as 10,000 employees could lose their jobs in the United States and 6,000 elsewhere, it added.

The closures underscore the turmoil faced by brick-and-mortar retail across a variety of fronts. Web merchants are gobbling up a growing share of shopping dollars, their vast online catalogs rendering Walmart’s sprawling superstores increasingly less relevant. And consumers are spending less on traditional retail items like apparel.

“Closing stores is never an easy decision, but it is necessary to keep the company strong and positioned for the future,” Doug McMillon, Walmart’s president and chief executive, said in a statement.

“It’s important to remember that we’ll open well more than 300 stores around the world next year,” he said. “So we are committed to growing, but we are being disciplined about it.”

Mr. McMillon had warned investors late last year that the company was considering shifts in its retail strategy. At the higher end of its new plan to add 142 to 165 new stores, Walmart’s store base in the United States would still rise; at the lower end, Walmart would, for the first time, shrink its United States footprint.

The closings account for less than 1 percent of global square footage and revenue, which totaled $485 billion last year.

Walmart’s exit from its smaller-format stores also highlights the difficulties it has faced in reaching more urban consumers. Introduced in 2011, its Express stores are slightly larger than a typical dollar store and were an effort to establish the retailer in bigger cities. But they have failed to make significant inroads or generate enough returns in the face of cutthroat competition from dollar stores and other discounters.

Over all, Walmart has been slow to pull out of a flat sales period after the recession and was slow to react to the pace of growth in online shopping.

Although sales have improved, the retailer has warned of lower profits going forward because of its investments in its work force and e-commerce. Over the last year, Walmart’s stock has tumbled 30 percent to its lowest level in half a decade.

Despite heavy spending on e-commerce initiatives, Walmart’s online sales growth is slowing.

“Physical retail, and large box in particular, is at a tipping point,” Richard Church, a retail analyst at the data analytics firm Discern, wrote in an email.

“There are too many stores in the U.S. across all retail sectors, low end to high end and everything in between,” Mr. Church wrote. “This is never more evident than when consumer demand is sluggish and decelerating, as it is now.”

It is a difficult time for retailers over all. Though gas is cheap and the job market is strong, retail sales have struggled to gain any traction, falling 0.1 percent in December from the previous month, according to figuresreleased by the Commerce Department on Friday.

The National Retail Federation, an industry trade group, separately estimated that holiday sales rose just 3 percent from the previous year, below its projection of 3.7 percent growth.

The tepid showing by consumers adds to worries among investors, already troubled by the market turmoil in China and elsewhere around the globe, that the recovery in the American economy remains fragile.

There are bright spots in retail, like Lululemon Athletica, which raised its earnings outlook as it continued to ride a boom in athletics wear. L Brands, which owns Victoria’s Secret, reported its “best December ever” after the lingerie brand generated holiday buzz with a star-studded fashion show.

But heavyweights like Gap and Macy’s reported dismal holiday sales as warm weather in much of the country hurt sales of winter clothing. And on Thursday, Best Buy said its winter had been disappointing so far; sales have been hurt by a lull in demand for smartphones and other consumer electronics despite heavy discounting.

Noam Paransky, a director in the retail practice at the consulting firm AlixPartners, said that retailers were reaching the limits of competing on price, especially with online merchants eager to beat prices.

Brick-and-mortar retailers needed to come up with a better proposition, he said, to lure shoppers into their stores.

“ ‘Stack it high and let it fly’ doesn’t work anymore,” he said. “They have to figure out how to make shopping fun again.”

About 16,000 store employees will be affected worldwide by the closings, Walmart said. The stores are scheduled to shut down by the end of January.

Walmart said it intended to transfer as many workers as it could to nearby stores and offer severance pay to those who do not find new positions. The company is the nation’s largest private-sector employer.

Workers’ groups blasted Walmart’s move.

“For Walmart, its workers are disposable,” said Jess Levin, communications director at Making Change at Walmart, a group backed by the United Food and Commercial Workers International Union and a longtime critic of working conditions at the retailer.

“These latest store closings could very well be just the beginning,” she said. “This sends a chilling message to the company’s hard-working employees that they could be next.”

Of the 154 locations Walmart will close in the United States, 102 will be Walmart Express stores. The company said it would focus more on the slightly larger Neighborhood Market format, which has logged stronger sales (though it will also close 23 of those stores). Walmart is also closing 12 supercenters and four Sam’s Club membership stores.

The bulk of Walmart’s 115 closings overseas are in Brazil, where the economy is slowing. The retailer will also close 55 primarily small, loss-making stores in other Latin American markets, it said. The closures are expected by the end of the month.

Walmart said that costs associated with the closings would shave an estimated 20 to 22 cents from its earnings per share, and that the effect would be felt mostly in its fourth-quarter results, which it reports next month. That effect is not reflected in its quarter or full-year earnings guidance.

Thanksgiving/Black Friday Online Sales Hit $4.5B, 34% Of Purchases Made On Mobile

The first two days of the holiday sales period have netted $4.45 billion in U.S. online purchases, with mobile devices — led by smartphones — accounting for a record $1.5 billion of that amount, with $2.72 billion spent on BlackFriday and $1.73 billion on Thanksgiving. The figures come from Adobe, which has been tracking some 4,500 sites, including 80% of the top 100 retailers.

IBM says Black Friday outpaced that with the average basket size of $134.45, and sales up 20.7% on a year ago with popular items including Apple Watch, Microsoft’s Surface Pro 4, and TVs from Samsung, Sony and LG.

The number of people buying goods online and by mobile during the holiday season continues to grow, but the average value of what they are buying may be falling. IBM says that Thanksgiving online sales — amassed by way of its Benchmark survey tracking thousands of sites — overall were up 26% compared to a year ago. But the average spend per order on Thursday as $123.45. That’s down from $125.25 a year ago, and nearly $10 less than 2013, when the average basket value was $132.

Adobe said that its $2.72 billion in estimated spend online on Black Friday showed growth of 14%. Adobe had expected growth of 19%.