2016 SFIA INDUSTRY LEADERS SUMMIT NAVIGATES DISRUPTION · 2016 SFIA INDUSTRY LEADERS SUMMIT...

VOLUME 1 | ISSUE 11 SEPTEMBER 19, 2016NEWS, ANALYSIS AND INSIGHT FOR THE ACTIVE LIFESTYLE EXECUTIVE

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2016 SFIA INDUSTRY LEADERS SUMMIT NAVIGATES DISRUPTION

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There is plenty of disruption in the sports and fitness industry — retail bankruptcies, rapid technology and fashion-trend shifts and a transition to millennials as primary purchasers, to name a few.

But if the 2016 Sports and Fitness Industry Leaders Summit in Denver, September 14-15, was any indication of how the industry’s brands and playmakers will navigate that disruption, there’s a chance for calmer waters ahead.

That’s not to say things won’t be choppy in the short term.In fact, rapid change needs to happen, said SFIA Chairman and Life

Fitness President Chris Clawson, pointing to the association’s most recent figures that show the number of inactive Americans — those that didn’t even go for one jog or hike in 2015 — grew to 81.6 million, up 16 percent from 2007. In addition, 10 percent fewer Americans reported being active at least three times a week in the past five years.

“That figure should scare everyone in this room,” Clawson said, as that segment represents the heart of the industry’s customer base. Another trend to note: casual participation of sports — e.g. a pick-up game of basketball versus league play — rose, while core participation declined.

“Going forward, the key to our business is youth,” he said. “We have to activate and invest in children. If we can get them activated, they will find a way into our industry.” In other words, the upfront investment in youth sports and activities will pay off in the long run.

Participation in 10 of 12 youth sports has declined in the past five years, with gains only seen in softball and lacrosse, Clawson said.

The good news for the industry, said SFIA President and CEO Tom Cove, is that despite all the challenges, particularly in retail — includ-ing that day’s news that Golfsmith had added itself to the growing list of

sporting goods retailers to file for bankruptcy — overall sales in the indus-try are still up, reflecting strong consumer demand for sports and fitness products. Still, he noted, it was no time for industry leaders to rest, given the challenges ahead.

Innovating ProcessOne of those challenges is the never-ending drive for innovation, said Reebok’s Vice President and Head of Future Bill McInnis (pictured above). But instead of just new products, the industry has to think about new processes, especially on the manufacturing front.

“We’ve hop-scotched around the globe chasing inexpensive labor and we’re running out of places to go,” he said. He pointed to footwear as an example, where, he said, brands have been making shoes pretty much the same way for 25 years, using molds for soles, which are expensive, time-consuming, not environmentally friendly and not customizable once the metal is cast.

“We keep hearing about 3-D printing. ‘It’s coming, it’s coming, it’s coming …’ but it’s still not here. It’s great for prototyping, but not for mass production. It’s coming, but not next week, not next month, not next year.”

So Reebok turned to the auto industry to get some better ideas on automation, he said. The discovery was robots that can precisely draw with liquid polyurethanes, which later harden to create the shoe’s rubber, versus molding it. “Where you draw, it sticks,” McInnis said. The big advantages of the technology are that designers can set the machines to create whatever they dream up, including using different densities of rubber for traction and flexibility, without any wasted material. And officials believe that once perfected, the process will cut product lead times in half. Finally, what

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He continued: “Your current HR strat-egy is cannibalism — stealing your com-petitor’s talent and they turn around and steal your talent. We have a tremendous opportunity to create a skilled labor force with the next generation — when I have a problem with my iPhone, I don’t call Ap-ple, I turn to my 14-year-old — these kids are smart. We have to invest in training and apprenticeships.”

Perez added that companies who want the best skilled labor will also have to focus on company culture and sustainability.

“If you want millennials, you need 21st century HR,” he said. “These are conscious consumers and employees — they’re look-ing at the sustainability of your supply chain and voting with their feet.”

Finally, on pay, Perez alluded to the Obama’s administration’s upcoming la-bor rule on overtime, which among other things will stipulate that a salaried worker must make at least $47,500 a year to be ex-empt from being paid time-and-a-half for overtime.

“It’s Henry Ford economics,” Perez said. “He doubled wages at one point, because, first, he wanted to reduce attrition, and sec-ond, he wanted his workers to be able to at least afford the products they were making.”

Perez also urged businesses to support “sensible federal family-leave policies and child-care support.”

“If we would have kept pace with Canada on this front, we’d have 5 million more women in the workplace,” he said.

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NEWS, ANALYSIS AND INSIGHT FOR THE ACTIVE LIFESTYLE EXECUTIVE

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Reebok is dubbing its “liquid factories” will be able to be located anywhere in the world, including the United States. It doesn’t take as many people to run the machines, therefore evening out labor costs.

Reebok will officially debut the manufac-turing technology in late September with a limited-run shoe — 300 pairs — designed and assembled in the United States.

“It’s not a new shoe,” McInnis said. “It’s a new process.”

While the technology primarily focuses on a shoe’s sole and rubber parts, McInnis said, a shoe’s upper isn’t far off from simi-lar advances, perhaps referring to Reebok’s sister brand Adidas and some competitors, which have invested in automated knitting machines to construct uppers.

Skilled-Labor NeedsWhile technology and smarter machines might help bring back some jobs to the United States, it won’t replace the millions lost when factories went overseas. The solu-tion will be better training, said U.S. Secre-tary of Labor Thomas Perez, who was the event’s highest-profile speaker.

“I always ask businesses, ‘What can we do to help?’” he said. “They always answer, ‘We need more skilled workers and new customers.’”

While the government can help, it’s also up to businesses to do their part, Perez said. “We’ve seen companies committed to in-vesting in tech, but we must also make in-vestments in our people.”

Life Fitness President and SFIA Chairman Chris Clawson addresses the audience at the 2016 SIFA Industry Leaders Conference.

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Political And Economic ForecastPolitics and its effect on the economy remained front and center at the SFIA Industry Leaders Summit with a presentation from Bernard Bau-mohl, chief global economist for the Economic Outlook Group.

Baumohl contended that politics play a much larger role in econom-ic forecasting than many economists give it credit for. “One cannot be just an economist; one must be a political economist,” he said. “Don’t believe any forecast that doesn’t also say who is going to be in the White House.”

Given that, Baumohl said his group believes Hillary Clinton will win the election and that GDP will grow between 2 and 3 percent through 2018. Interest rates will begin creeping up, but not until after the elec-tion, he said. Oil prices should gradually rebalance between $50 and $60 a barrel. “The challenge for OPEC is to not let the price go too high that it re-ignites the U.S. fracking industry,” he said.

While that’s all good news for the economy, there are risks that can de-rail any forecast, Baumohl said. Terrorism in Europe, particularly on so-called soft targets, could really hamper the tourism economy there. And Baumohl said there’s increasing evidence that terror and militant groups will begin trying to de-stabilize Saudi Arabia, which could greatly affect oil supplies. Increases in cyber threats and consumer data hacking are rising problems for businesses and governments, and so is shipping and supply chain threats, including China’s activity in the South China Sea.

Quizzing AmazonComing back to the topic of selling sporting and fitness goods, one of the more anticipated events at the SFIA Industry Leaders Summit was a con-versation with the Amazon.com Sports segment leadership, moderated by SFIA’s Cove.

“At the core, Amazon is customer obsessed,” said Fouzan Mansuri, di-rector and Sports category leader for the online retail giant. “Every time we look a problem, we look at how it affects the consumer.” He added that the company focuses on “invention…a willingness to fail…and patience to think long term.”

Specifically within the sports category, Mansuri said the retailer has seen its best success within its Amazon Family and Amazon Student seg-ments. The Amazon Sports customer tends to trend younger and has a higher income, he added. But, he clarified, “we really do see each customer as his or her own customer segment…the algorithms are based on their unique buying patterns.”

The challenge facing Amazon isn’t data, said Ryan Elvers, Amazon’s se-nior manager of sports marketing and marketplace. “We have more than enough data. The challenge is how to inspire. Most customers know what they want when they come to Amazon, but what about those who want to browse?”

On that front, Amazon is having success with creating “new-and-inter-esting-find lists” for consumers, and largely through mobile-device end-less scrolling, it has found that shoppers will spend time browsing.

So how do sports brands make sure their products get to the top of such lists and other search results on Amazon?

“The algorithm is a constantly changing flywheel,” Elvers said, so there’s no single answer. “It comes down to how many people reached your prod-uct, and of those people, how many bought your product.” Reviews also help, he said.

Best tips for brands wanting to sell their products on Amazon? “Think about your online strategy and how it fits into your overall strategy,” Mansuri said. “Think about how that product works online, too. How it’s shown online — photos, videos, colors — and how the packaging will fare in transport.”

SFIA CEO and President Tom Cove (left) moderates a conversation with Amazon.com Sports’ Category Leader Fouzan Mansuri (center) and Senior Manager Ryan Elvers (right).

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On the eve of America’s largest trade show for independent bicycle deal-ers (IDBs), Europe’s largest IBD cooperative announced this week it had withdrawn from Eurobike to focus on building up its own show over the next three years.

ZEG, which provides buying and other services for approximately 960 IBDs in Germany, announced September 13 that it had pulled out of Eurobike and will focus on expanding the ZEG Bike Show, which will open to non-member dealers for the first time next summer.

ZEG, which exhibited its private brands at Eurobike, attributed its deci-sion to the show’s declining proportion of trade visitors and a decision last week to cut Eurobike’s consumer festival back to one day from two. The ZEG Bike Show is scheduled to take place July 21-24, 2017 in the group’s home town of Cologne.

“We will do more in the future on our increasingly successful and grow-ing in-house exhibition,” said ZEG CEO Georg Honkomp. “We are taking a new approach. We will increase the importance of our internal trade fair in the industry and make it a special product experience.”

ZEG, an acronym for Zweirad Experten Grupe (Bicycle Expert Group), is Germany’s exclusive distributor for Pinarello, buys from Cannondale, Scott, Hercules and other major brands and owns the Pegasus family, Bulls mountain bike and Green Mover and Zemo e-bike brands. It had exhibit-ed the Bulls, Hercules and Kettler aluminum bikes at Eurobike.

The cooperative made its announcement September 13, or 11 days after Eurobike wrapped up in Friedrichshafen, Germany and a week after the show’s producer Friedrichshafen Messe announced Eurobike will return to a three-day schedule in 2017 after its one-day extension of Eurobike Festival Days consumer show did not meet expectations. In its announce-ment, ZEG said nothing of opening its show to consumers.

The news comes on the eve of Interbike, which is expected to draw about 25,000 IBD buyers and owners to Las Vegas September 19-23 for two days of test riding Model 2017 bikes and a three-day trade show that opens its doors to consumers on its final day. With more than more than 300,000 square feet of exhibition space, 750 exhibitors, 1,400 brands and 150 educational seminars, Interbike is by far the largest gathering of the cycling tribe in the Western Hemisphere.

On September 23, members of the public willing to pay $20 are admit-ted to “see just about every major brand on sale in your local bike shop, including several new brands.”

This year, dozens of bicycle brands will be on display, including BMC, Cannondale, Colnago, Divinci, Easy Motion, Elliptigo, Marin, Raleigh, Scott, Tern and Yuba. However, none of the Big 3 brands — Specialized, Trek and Giant — will be there.

Giant will not participate in the show’s two-day demo event after opting instead to preview its Model Year 2017 bikes to U.S. dealers via a multi-city tour over the summer.

Interbike producer Emerald Expositions LLC has responded by work-ing closely with trade groups to enhance educational seminars for dealers and create showcases for e-bikes and Made in USA products. The National Bicycle Dealers Association will offer 19 free seminars on social media, selling, marketing to millennials, customer loyalty and other topics, while the Electric Theater presented by Bosch will offer 11 seminars on how and why to tap the emerging e-bike market.

“Interbike is about the future and adapting your business to changing conditions,” noted Ray Keener, executive director for the Bicycle Product Suppliers Association. “It’s not really about bikes any more. It’s becoming about how Americans buy things.”

Given the tectonic shifts taking place in the industry, the programming alone is worth hopping on a plane for a few nights in a cheap hotel room, said show supporters.

EUROBIKE DEFECTION ECHOES INTERBIKE’S CHALLENGES

WOLVERINE PULLS TRIGGER ON FACTORY EXPANSION

Wolverine World Wide Inc.’s decision to increase production at a factory in Big Rapids, MI signals confidence that a massive defense spending bill bottled up in Congress will require the Pentagon to source athletic foot-wear domestically.

Wolverine said it will spend $2 million adding 16,000 square feet to a 75,000-square-foot facility in Big Rapids, MI, which already manufactures up to 1 million pairs of boots annually for the U.S. military. The expansion will allow the factory to house all facets of production under a single roof.

The announcement came during an August 31 factory visit by U.S. Senator Gary Peters, who strongly supports legislation requiring the Army, Navy, Air Force and Marine Corps to begin equipping recruits exclusively with made-in-America athletic footwear as required by the Berry Amendment. While the provision was included in two defense spending and appropriations bills passed by the House and the Senate this summer, the bills remain bottled up in conference committee.

Wolverine Worldwide has said that if the provision becomes law, it plans to bid for those contracts through its Saucony brand, which would source the shoes from the Big Rapids factory.

The factory, which has made Berry Amendment-compliant boots for the U.S. and foreign militaries for years, secured a contract in March from the U.S. Marine Corps that could be worth up to $30 million over the next five years.

Photo courtesy Eurobike


In an affidavit filed in the United States Bank-ruptcy Court for the District of Delaware, Bri-an Cejka, Golfsmith’s chief restructuring offi-cer, blamed the company’s bankruptcy filing on a range of factors including an expansion effort with larger store formats, the recession, the ongoing shift toward online shopping and the declining popularity of the game of golf, in part caused by the descent from stardom of Tiger Woods.

In the court filing, Cejka said Golfsmith had “historically … been profitable” and was supported by a “wide-ranging, loyal customer base” and strong interest in golf.

The company was founded in 1967 by Carl and Barbara Paul as a provider of custom-made golf clubs, golf club manufacturing compo-nents and golf club repair services. It opened its first brick-and-mortar store in Austin, TX in 1972, and circulated its first general catalog selling third-party products in 1975.

Rise And Fall Of The Golfsmith EmpireGolfsmith primarily operated as a cata-log-based business until the 1990s, when it embarked on a large-scale expansion. In 1992, the company moved to its present headquar-ters, a 40-acre campus that includes corpo-rate administration offices, a practice driving range, a 30,000-square-foot Golfsmith su-perstore and 240,000 square feet of shipping and distribution facilities. In 1995, Golfsmith began an aggressive retail expansion with the opening of superstores in Houston and Dallas, TX and Denver, CO. In 1997, it launched its first e-commerce website to fur-ther expand its direct-to-consumer business.

“The surge in the popularity of golf at the turn of the century coincided with the rise of professional golfer Tiger Woods’ success,” wrote Cejka in court papers. “Golfsmith responded to what has been dubbed the ‘Tiger Woods Phenomenon’ by rapidly expanding its

businesses and increasing its store presence in targeted urban markets.”

Recently, however, economic downturns, industry trends and global shifts in consumer behavior began to put “significant pressure” on the company’s operational performance.

“Beginning in 2008, the golf industry experienced a steady decline as golf participa-tion slowed during the recession,” Cejka said. “The retail industry as a whole was severely impacted by the recession, and as a result, specialty retailers like GSI, which focuses on leisure products, were hit particularly hard. This period also marked the beginning of a consistent shift by consumers away from shopping in traditional ‘brick and mortar’ retail stores toward a preference for the conve-nience provided by shopping on e-commerce platforms. At the same time, the enthusiasm underpinning the ‘Tiger Woods Phenome-non’ significantly waned.”

Photo courtesy Golfsmith

GOLFSMITH BLAMES BANKRUPTCY IN PART ON TIGER WOODS

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Beginning in 2011, in an effort to main-tain its competitive edge during the rise of the sports “superstore,” Golfsmith began to open large-format stores in excess of 30,000 square feet. Those expansion efforts “reached their apex” in July 2012 with the formation of Golfsmith International Hold-ings LP (GSI), which represented the merger of U.S.-based Golfsmith and Canadian-based Golf Town. At the time, the parties declared the merger created the largest golf retailer in the world.

Cejka wrote, “The merger succeeded in joining two companies that had been serv-ing golfers in North America for more than four decades, with the intention of allowing the company to pursue an aggressive growth strategy to maximize its footprint in the golf retail industry.”

For Golfsmith International, however, those changes were particularly debilitating, given that they coincided with the company’s aggressive expansion efforts. The “superstore” strategy led to higher rents and occupan-cy costs as well as reduced store-level pro-ductivity. Following the merger, Golfsmith opened even more stores in historically- successful metropolitan markets in an attempt to capture additional sales.

Wrote Cejka, “This strategy also was inef-fective and resulted in significant sales canni-balization and increased overhead expenses. In short, a subset of underperforming and oversized stores and above-market leases drive the debtors’ occupancy costs to over-whelming levels.”

Stabilization EffortsSince 2014, Cejka wrote, Golfsmith Interna-tional has taken a number of steps to improve its liquidity and operational performance. The steps included out-of-court strategic restruc-turing alternatives, securing additional collat-eral to increase available borrowings under its credit line, landlord negotiations to ease lease terms, vendor negotiations to improve payment terms during off-season periods, job cuts and selling certain non-core assets.

“Despite the company’s best efforts, how-ever, this process did not sufficiently shrink Golfsmith’s underperforming store base and optimize its lease portfolio – two objectives that are indispensable to Golfsmith’s success-ful restructuring,” wrote Cejka. “The com-pany’s EBITDA cannot support its current capital structure.”

Moreover, in recent months several key vendors have tightened trade terms, reducing Golfsmith’s ability to secure inventory and impacting its ability to borrow under its loan facility. Cejka wrote, “This vicious cycle has severely limited the company’s ability to ded-icate essential time and resources to investing in operational growth commensurate with consumer trends.”

To address these concerns, the company conducted an “extensive auction process” prior to the commencement of its Chapter 11 cases. The process led to an agreement to sell Golf Town to Fairfax Financial Holdings and CI Investments. Fairfax and CI collectively hold approximately 40 percent of the compa-ny’s senior secured notes. Proceeds from the sale will be used to reduce Golfsmith’s debt.

The bankruptcy filings are designed “to stabilize their businesses and to pursue an operational and financial restructuring around a smaller footprint of profitable Golfsmith stores,” said Cejka.

Beyond BankruptcyThe Golfsmith restructuring is expected to result in the closing of at least 20 Golfsmith doors, a nearly 72 percent reduction of Golfsmith’s obligations under its senior secured notes, and the refinancing of the remaining asset-based credit line with a new working capital facility. Wrote Cejka, “The transactions will provide a comprehensive solution for the company and will be the best outcome for its suppliers, employees, custom-ers and other economic stakeholders.”

As part of its interim financing arrange-ments and in order to maximize the value of their estates and creditor recoveries, GSI is also exploring a sale of the U.S. Golfsmith business, which Cejka described as a continu-ing of efforts started in June 2016.

He noted that as of August 29, the company received four bids to purchase some or all of the company’s assets, which included two bids to purchase Golf Town only, one non-binding bid to purchase the entire company, and one non-binding bid to purchase Golfsmith. Only the Fairfax and CI bid was consummated.

While the sale process proceeds, the com-pany intends to advance the Golfsmith debt restructuring efforts and to take steps to re-finance or repay the remaining asset-based loan obligations. Wrote Cejka, “In the event that the sale process generates a higher or oth-erwise better value for the debtors’ assets, the

debtors will, in consultation with their credi-tor constituencies, determine whether a sale of Golfsmith should be pursued in lieu of the Golfsmith restructuring.”

Cejka also noted that the pressures that led GSI to bankruptcy court “are not unique to Golfsmith,” pointing out that direct com-petitors such as Sports Authority, Sports Chalet and City Sport have also recently filed for bankruptcy. He added, “Other specialty apparel retailers such as Quiksilver, American Apparel, Aeropostale, and Pac-Sun have all sought Chapter 11 protection in the face of similar market conditions recently.”

In addition, he listed Wal-Mart, Macy’s, Sears, J.C. Penny, Ralph Lauren, Jos. A. Bank and Staples among those announcing “signifi-cant store closures” in 2016.

Possible Turnaround Keeps Hope AliveCejka noted that the bankruptcy filings and restructuring efforts come as “market trends indicate that a turnaround in the golf retail market could be imminent.” He noted that golf participation in the U.S. has stabilized and “begun to experience material growth for the first time since the recession-era decline.”

Specifically, Cejka pointed out that in 2015 the number of golf rounds played increased by 2 percent and approximately 2.2 million peo-ple took up the game, approaching the record 2.4 million who began playing at the peak of the “Tiger Woods Phenomenon.” Accord-ing to the March 2016 National Golf Rounds Played Report, golf rounds played increased by 5.5 percent between March 2015 and March 2016. Moreover, in the coming years, approx-imately 4 million people in the U.S. will enter into retirement and the NGF Study projects that this increase in the number of retirees will contribute to an incremental approximately 50 million rounds of golf played each year.

At the same time, the emergence of “exciting, young professional golfers” like Rory McIlroy, 27, Jordan Spieth, 23 and Jason Day, 28, “coupled with an increased focus by the industry on technological innovation and enhanced experience, have started to draw more millennials and junior golfers into the game.”

Cejka concluded that restructuring its cur-rent capital structure and being able to close some of its 109 retail locations through bank-ruptcy proceedings will “significantly reduce the burdens that inhibit Golfsmith from tak-ing full advantage of the recent upward swing in golf ’s popularity.”


After filing for Chapter 11 bankruptcy protection September 14, Golfsmith International Holdings LP will attempt to reorganize, including the sale of the Canadian-based business of Golf Town and a debt recapitalization of the U.S.-based retail Golfsmith business.

A definitive agreement has been reached to sell Golf Town to Toronto fund manager CI Financial Corp. and Fairfax Financial Holdings Ltd., controlled by Canadian financier Prem Watsa.

At the same time, a support agreement has been reached with Fairfax and CI with respect to a recapitalization and restructuring of the U.S.-based business of Golfsmith. Fairfax and CI collectively, through funds or other entities managed or controlled by them, hold more than 40 percent of the company’s second lien secured notes due 2018.

The U.S. business, operating under the Golfsmith brand, will try to restructure its operations by closing weak stores and refinancing debt to emerge on a standalone basis. The company owes $100 million on an asset-backed loan and C$125 million ($95 million) in second-lien notes that come due in 2018.

The company also said it would be exploring a sale of its U.S. business to see if it offers a better return to creditors.

As part of the reorganization efforts, the company said 20 Golfsmith stores have been identified for immediate closing. It is also expected to close a small number of stores in Canada and renegotiate some leases. Based in Austin, TX, the company has 109 stores in the U.S. operating under the Golfsmith banner and 55 stores in Canada operating under the Golf Town name.

The filing in Delaware court listed debt and assets of as much as $500 million each in Delaware court.

In the filing, the company blamed an aggressive plan that began in 2011 to open bigger stores that cost more to operate just as golf began to lose popularity.

“Unfortunately, the rippling effect of these market factors coincided with GSI’s company-wide expansion efforts, leaving Golfsmith with an

oversized store footprint,” Brian E. Cejka, the chief restructuring officer, said in court papers filed in Wilmington.

Reports had surfaced over the last month that Golfsmith was strug-gling with a heavy debt load traced to its 2012 merger with Golf Town. The company continues to be owned by OMERS Private Equity Inc., part of the Ontario municipal employees’ pension fund, which backed the 2012 merger.

The transactions and bankruptcy filing come after extensive discussions with lenders and other key stakeholders to address liquidity challenges and a “comprehensive sale process” undertaken by the company with the assistance of Jefferies LLC.

In its statement, Golfsmith International said the Golf Town and Golfsmith transactions “will benefit a broad range of stakeholders, provide the Golf Town and Golfsmith businesses with a sustainable capital structure and retail footprint moving forward and provide stability for customers, suppliers, employees and other key stakeholders.

Under the sales transaction, Fairfax and CI will acquire substantially all of the assets of the Golf Town business, including the acquisition of certain leases, inventory and working capital assets. Any Golf Town retail locations not acquired will be closed.

The proceeds from the sale will be used to repay a substantial portion of the company’s first lien credit facility to reduce Golfsmith’s leverage and interest costs while the company works on executing the Golfsmith recap-italization transaction.

The Golfsmith recapitalization is designed to deleverage the Golfsmith business, through the cancellation of its existing secured notes and the issuance of new second lien notes, and 100 percent of the equity in re-structured Golfsmith to holders of the company’s existing secured notes. The new second lien notes will have a principal amount of approximately $35 million, an extended maturity date, and an option for the restructured Golfsmith entity to pay interest in kind rather than in cash. The remaining portion of the credit facility will also be refinanced following its pay-down

GOLFSMITH TO RESTRUCTURE IN BANKRUPTCY PROCEEDINGS, AGREES TO SELL GOLF TOWN

Photo courtesy Golfsmith

(Con’t Pg. 9)


$100 MILLIONOwed by Golfsmith on an asset-backed loan, along with C$125 million ($95 million) in second-lien notes that come due in 2018, according to its bankruptcy filing. Moving forward, the company will try to sell its Canadian Golf Town business and salvage its U.S. business by restructuring operations, closing weak stores and refinancing debt.

10 PERCENT FEWERAmericans are active at least three times a week versus five years ago, according to the Sports and Fitness Industry Association. In addition, participation in 10 of 12 youth sports has declined during the period with gains only in softball and lacrosse.

20 PERCENTProfit surge reported by JD Sports Fashion Plc in the 26 weeks ended July 30. JD is also reportedly in the process of considering a bid for the United Kingdom’s 55-store Go Outdoors specialty chain.

30 TOPUnsecured creditors in the Golfsmith International Holdings bankruptcy case were led by Callaway Golf, owed $5.5 million, TaylorMade Golf, owed $5.1 million and Nike USA, owed $3.5 million.

100 IN-STORE SHOPSShoe Carnival plans to open for Nike by the close of 2017. The footwear retailer projects 47 of that 100 will open by the end of this year.

BY THE NUMBERS

The list of the 30 top unsecured creditors in the Golfsmith International Holdings bankruptcy case was led by Callaway Golf, owed $5.5 million, followed by TaylorMade Golf at $5.1 million and Nike USA at $3.5 million.

Other trade creditors landing on the top 10 unpaid-bills list included Ping, owed $2.4 million; Titleist/Acushnet Co., $1.83 million; Footjoy, $1.86 million; Cobra Puma Golf, $1.83 million; Garmin USA, $1.28 million; Bushnell Holdings, $1.27 million and Roger Cleveland Golf Co., $1 million.

Trade creditors owed less than $1 million included Mizuno Golf, $736,803; Golf Gifts & Gallery, $601,781; Ogio International, $572,906; Ecco USA, $459,374; Sun Mountain Sports, $458,285; Wilson Sporting Goods, $383,820; Pride Manufacturing Co., $259,763; Eaton Corp. Golf Grip, $228,421; Volvik USA, $209,943; Sports Casuals, $199,550; Lamkin, $189,306; Maibor Corp., $183,535; The Proactive Sports Group, $180,678 and Formosa Golf Corp., $176,883.

Unsecured debt also included severance for Sue Cove, the former CEO, who is owed $564,103, and David Spence, Golfsmith’s former SVP and CFO, who is owed $334,965.

Other unsecured creditors left with unpaid bills included Google Inc., $617,365; UPS, $461,458; BMC Software, $203,510 and Excel Trust, a landlord, $214,814.

CALLAWAY AND TAYLORMADE TOP GOLFSMITH’S UNSECURED CREDITORS LIST

from the proceeds of the Golf Town transaction. Finally, an operational restructuring of the Golfsmith business will result in the closure of certain underperforming stores and the sale of excess inventory.

In an effort to “ensure the stability of the business and to protect value for the benefit of all stakeholders,” the transactions are being adminis-tered through court-supervised restructuring proceedings. On Wednes-day, Golf Town commenced creditor protection proceedings under the Companies’ Creditors Arrangement Act (CCAA) in the Ontario Superior Court of Justice, while Golfsmith filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware.

Golfsmith wrote in its statement, “The CCAA and Chapter 11 proceed-ings will provide the appropriate forums for the completion of the trans-actions, the rationalization of the company’s retail store network and the completion of other restructuring activities in an orderly manner for the benefit of stakeholders.”

Pursuant to the Support Agreement, Fairfax, CI and other certain other secured noteholders have agreed to support the Golf Town transaction and work with the company to advance, support and implement the Golfsmith transaction. The company plans to work with other secured noteholders to obtain their support for both transactions.

Antares Capital LP has agreed to provide a $135 million debtor-in-pos-session (DIP) financing facility. The funding is subject to approval by the CCAA Court and the Bankruptcy Court.

In connection with the DIP Facility, the company will undertake a dual track sale process in the Chapter 11 proceedings “to explore the potential for an alternative sale transaction for the Golfsmith business that maxi-mizes value for the benefit of stakeholders.” At the same time, Golfsmith will use the bankruptcy process to advance the Golfsmith recapitalization efforts to refinance or repay the credit facility obligations in connection with the restructuring.

“We believe that the Golf Town Transaction and the Golfsmith Trans-action provide an overall going concern solution for the company’s oper-ations and will provide Golf Town with a streamlined sustainable retail footprint and Golfsmith with an improved capital structure. Completion of the transactions will position Golf Town and Golfsmith to continue to generate value for the benefit of stakeholders,” said David Roussy, chief executive officer of Golfsmith International, in a statement. “Today represents a significant step forward for the long-term viability of the Golf Town and Golfsmith businesses. We will continue in our commitment to provide our customers with the exceptional service and high-quality golf products they have come to expect from us.”

“David Roussy and the entire team have done a tremendous job pre-serving value for stakeholders through this transition and putting together the Golf Town and Golfsmith Transactions,” added Paul Rivett, president of Fairfax, in the statement. “We look forward to working with David and his team along with its employees and stakeholders.”

Completion of the Golf Town Transaction is subject to approval by the CCAA Court and any regulatory approvals. The purchase agreement pro-vides for an effective closing date of October 31, 2016. Completion of the Golfsmith Transaction is subject to the finalization of definitive documen-tation, bankruptcy court approvals, the refinancing of the credit facility on terms acceptable to the company and the supporting noteholders and the receipt of regulatory approvals.

Golfsmith hired Jeffries LLC and Alvarez & Marsal earlier this year to solicit potential buyers and review various restructuring strategies. More recently it has been advised by Weil Gotshal & Manges LLP And Good-mans LLP.


CHRISTY SPORTS FIRST ACQUISITION FOLLOWS GART MODELChristy Sports LLC’s decision to expand into the Pacific Northwest by acquiring an existing specialty retailer and leaving its management and trade names intact marks the latest example of growing confidence in the independent specialty model.

Christy Sports divulged September 8 that it had acquired Dual Sports Inc. for undisclosed terms from Jeff Campbell, Tracy Gibbons and Stacey Wiechbrodt – three longtime employ-ees who acquired the business in 2007. Current plans call for the three to continue running the company’s Sturtevant’s, Ski Mart and SkiBonkers businesses, although Campbell will be leaving the company at some point in the future.

Sturtevant’s focuses on selling premium brands from two stores in Bellevue, WA, while Ski Mart rents ski and snowboard gear and focuses on selling more moderately priced gear at its two stores, which are located in Bellevue and Tacoma. SkiBonkers is a Labor Day clearance sale event. Christy Sports operates more than 45 stores in Colorado and Utah, as well as online.

The Gart ModelDual Sports marks Christy Sport’s first acqui-sition since selling an undisclosed equity stake to Norwest Equity Partners (NEP) last October in a bid to accelerate expansion. At the time, NEP said Christy’s had “positioned itself to be a trendsetter in apparel and accessory lines, operating with sufficient scale to take on a higher degree of risk relative to its competition.”

The deal follows a model pioneered by Ken Gart at the turn of the century to create Specialty Sports Ventures (SSV). The company built a net-work of more than 100 outdoor specialty stores by acquiring independently operated regional chains or stores and allowing them to continue operating under their existing banners and man-agement. Today that business, which is owned by Vail Resorts Inc., owns nearly 200 special-ty stores that sell winter, outdoor, cycling, golf,

tennis and other sporting goods and outdoor furniture in Colorado, Utah and California.

In January, Michigan-based Summit Sports merged with Austin Canoe & Kayak of Texas with help from Digital Fuel Capital, which invests in internet retail and digital marketing businesses. Austin, TX-based adventure travel retailer Backwoods used the same approach to enter the Colorado market with its 2013 acquisi-tion of Neptune Mountaineering of Boulder, CO.

The Finish Line Inc., by contrast, abandoned the model last year when it announced it would rebrand 72 independently run specialty stories it had acquired in partnership with Gart Capital Partners since 2012 as JackRabbit Sports.

A survey of over 3,200 independent busi-nesses by the Institute for Local Self-Reliance and Advocates for Independent Business found their revenue increased 4.7 percent on average last year compared with 2014. That included a 3.1 percent gain in sales during the end of year holiday season, which was significantly better than the 1.6 percent increase in overall retail sales reported by the U.S. Department of commerce for the month of December and surpassed results reported by by some publicly traded sporting goods retailers.

Whether Christy Sports will adhere to the model remains to be seen.

“When opportunities arise that allow us to expand we assess them in a case by case man-ner and decide if we can make a positive impact for both Christy Sports and local customers,” Christy Sports Director of Marketing Randy England told SGB Wednesday.

Synergies In SeattleThe deal gives Christy Sports access to one of the most affluent and ski-savvy communities in Greater Seattle, within an hour’s drive of Snoqualmie Pass and 100 miles from four oth-er ski areas, including Mt. Baker, which boasts the highest annual snowfall in the continental

United States. ChristySports.com has already begun advertising Sturtevant’s and Ski Mart locations as the only Washington affiliates of Smart Rental, an online service that enables people to reserve rental gear for alpine and cross country skiing and snowboarding at shops in nine states as well as Canada and Europe.

The acquisition also provides geographic and category diversification. In addition to being Bellevue’s leading ski and snowboard specialty retailer, Sturtevant’s and Ski Mart have signif-icant water sports businesses. That should im-prove summer cash flow and mitigate the risk of low snowfalls in the Rockies.

In terms of competition, the deal is a mixed bag. Vail Resorts Retail, which is Christy Sports’ primary competitor on Colorado’s Front Range and a significant one in Utah, has no presence in Washington. And while Sturtevant’s claims to be the largest specialty snow sports retailer in Washington, REI and Evo both have flagship stores in Seattle, where Evo is headquartered, and REI operates eight stores in the metropol-itan area.

Traffic Up At Labor Day SalesIn October, Sturtevant’s will move its Bellevue store 2.2 miles across I-405 to 13131 NE 20th St. next door to a Ski Mart and within walking dis-tance from a West Marine store. The new store spans 15,800 square feet, or roughly the same size as the existing space, but has a better layout that provides about 300 square feet of additional retail space and more open floor that will allow Sturtevant’s to put its repair/service facility on a separate floor, said England. To expedite the move, the existing store hosted the annual Ski-Bonkers pre-season clearance sale from August 31 through September 5, and will continue of-fering clearance prices through October 16.

The decision, as well as a good snow year last winter, contributed to a strong increase in traffic at SkiBonkers over previous years, according to England.

Christy Sports also saw an increase in traffic at its own Powder Daze clearance events over the Labor Day weekend.

“We attribute that increase to a combination of capturing former TSA (Sports Authority) customers as well as an influx of new residents moving to Colorado over the last year,” he said. “We can attest that guests’ excitement levels were very high this year, and all departments saw strong interest in their respective products. The early indicators, based on snow projections, show that customers are preparing for an active snow sports season.”

Photo courtesy Sturtevant’s


Despite weakness in canvas offerings impacting athletic gains in recent months, Shoe Carnival plans to continue to invest on the athletics side of its business by opening Nike in-store shops.

Speaking at the B. Riley Financial Consumer Conference on September 13, Shoe Carnival President and CEO Cliff Sifford said the retailer’s goal is to be the “destination store in the family channel” in the athletics category. To stake that position, Shoe Carnival plans to have 47 Nike in-store shops open by the end of this year and over 100 by the close of 2017.

The shops opened so far have increased Nike’s presence and overall ath-letic comps in those stores, he said. “Obviously, the hope is that at some point, as we get more and more of these shops and our Nike business con-tinues to grow, that we get product that would be special to us.”

He added that Shoe Carnival is open to experimenting with similar strategies in collaboration with other brands. “Not at the back of the store, because that is Nike’s space, but within the aisles.” Shoe Carnival’s other larger athletic brands include Adidas, Converse, New Balance, Puma and Skechers.

The push to open Nike shops comes as the off-price shoe retailer plans to offer less canvas offerings to customers and adding more retro classic athletic models to the mix to reflect the strengthening trend “from athlei-sure into more casual apparel.”

Canvas shoes “slowed dramatically” in the second half of July after being a strong driver of athletics for the past two years and remained weak through August, Sifford said. One caveat has been canvas basketball styles, which have remained strong sellers, especially in the women’s category.

At the B. Riley conference, Sifford said the trends have shifted to-ward “cleaner, whiter, cork kinds of shoes,” and the more “classic” styles have not been opened yet to the family channel. Added Sifford, “At some point, that will get opened to the family channel as we go into next year. And we will reap benefit of that as we go into the next back to school, hopefully.”

He also believes that, as in the past, the change to “cleaner white or athletic shoes” will lead to a change in what people are wearing. Denim is expected to regain momentum and is also expected to help performance of the non-athletic footwear business.

Sifford stressed that the company was planning its athletic business to be up in the coming year despite the shifts.

“We don’t believe the run is over,” said Sifford of the athletics’ momen-tum. “We think it has just changed.”

In other categories, boots are expected to be up mid single digits for the holiday season. The category is expected to gain a boost from predictions for more seasonal weather after a mild winter impacted sales last year. Fash-ion boot styles are expected to fare better than weather-focused boots. The latter’s sales were down by mid-20 percentages last holiday, and the retailer is still planning for slight declines this year, but Shoe Carnival has reached agreements with boot manufacturers that should enable the chain to get back into the product if cold weather arrives.

Sifford said the company still has a “strong growth goal” to reach 1,200 locations, up from 413 currently. Having taken over as CEO four years ago, the company had slowed down expansion to close less-produc-tive stores, but will be ramping up expansion in the coming years. This year, it is opening 20 doors and closing about 10. Next year, 30 to 35 open-ings are planned, along with eight to 10 closings.

The recent success of smaller locations supports the company’s expan-sion goals. Sifford sees room for 400 locations of its smallest format, which is about 5,000 square feet and addresses cities with populations ranging from 20,000 to 70,000. His prediction is for 300 locations of its slightly larger “midmarket” format, which is about 7,000 square feet and targets larger cities such as Dallas, Philadelphia and Detroit.

E-commerce, launched just four years ago, is expected to grow 30 percent year-over-year over the next 3 to 5 years and reach at least 10 percent of its volume.

SHOE CARNIVAL SEES 100 NIKE IN-STORE SHOPS IN 2017

Photo courtesy Shoe Carnival/Nike


AISLE TALK

Anomaly Action Sports, a maker of helmets, eyewear and body armor under the brand names Shred Optics and Slytech Protection, added Jeff Gilberti as EVP of Business Development.

The Boone and Crockett Club hired Tom Perrier as its Director of Sales.

Delta Apparel Inc. completed the sale of its Maiden, NC textile facility, and certain assets used in those operations, as part of a previously announced manufacturing realignment.

Honey Stinger hired former Gu VP of Sales and Marketing Christian Johnson as its VP of Sales.

MLB opened a pop-up store in downtown London, which is the league’s first standalone retail space in Europe.

Nautilus Inc.’s VP, GM of Commercial and Specialty Dennis Lee will transition out of his role at the close of 2016. Octane Fitness veteran Ryan Simat has been appointed to fill Lee’s position.

The NCAA and ACC have pulled their 2016/17 championship events out of North Carolina following the state’s HB2 law.

The NFL will commit $60 million toward developing technology such as improved helmets, and an additional $40 million over the next five years toward medical research, primarily neuroscience, as part of a new player health and safety initiative.

Nike signed golfer Jason Day to an endorsement deal.

Nuun & Co. partnered with exercise physiologist and nutrition scientist Stacy Sims to promote education, product innovation and clean living initiatives.

OIA welcomed Jeremy Town as VP of Finance and Operations.

RetailNext Inc. predicted a 3.2 percent year-over-year lift in sales at retail over the November/December holiday period, driven partly by a 14.9-percent increase in sales through digital channels.

RockyMounts appointed Rod Judd to the newly created position of Sales Director.

Sealskinz hired Brendan Collins as national accounts manager, reporting to the U.S. Country Manager Shawn Pritchett.

Skechers USA Inc. signed a new joint venture partnership for Israel with its current regional distributor, MGS Sport Trading Ltd.

Ski Brasil Founder and CEO Eduardo Gaz launched Miami-based Ski USA as a complement to its existing high-end ski tour business.

Topgolf secured a five-year $175 million term loan and a five-year $100 million revolving line of credit.

VF Corp. filed paperwork Thursday to sell €850 million ($955 million) in seven-year, senior unsecured notes to raise funds for working capital and other general corporate purposes, including the repayment of outstanding commercial paper.

Wilson Sporting Goods Co. formed a three-year agreement to become the official equipment supplier of the U.S. Professional Tennis Association.

Wolverine Worldwide completed debt refinancing activities on September 15, 2016, including the amendment of its senior credit facility and the redemption of its 6.125 percent senior notes due 2020.

JD Sports Fashion Plc, which is reportedly considering a bid for the United Kingdom’s 55-store Go Outdoors specialty chain, reported record profits on a 20-percent surge in revenue in the 26 weeks ended July 30.

The U.K. retailing group reported revenue reached £970.6 million ($1.22 billion) as it opened 20 of its own stores across Europe and added another 224 by acquiring retailers in the Netherlands and Portugal. Same-store sales across the group, which comprises 953 stores in its Sports Fashion segment and 180 in its Outdoor segment, increased 10 percent.

At the company’s Sports Fashion segment, which sells apparel, footwear and accessories, revenue jumped 21 percent to £897.5 million, gross margin grew 70 basis points to 48.4 percent and operating profits surged 53 percent to £79.9 million.

“The favourable trends for athletic inspired footwear and apparel in Europe have continued into this year,” said Executive Chairman Peter Cowgill. “We are very much at the center of this market, with our success being a positive consequence of the investments we have made over a number of years to develop the JD retail concept.”

Cowgill added that key brand partners continue to support the compa-ny’s aggressive expansion overseas.

“Although the U.K.’s vote to leave the European Union means that there will be some uncertainties over the next two or three years, we have no doubt that we have the support of our brand partners to continue our expansion in Europe and beyond.”

At the Outdoor segment, operating losses before exceptional items improved to £2.3 million, versus £4.5 million in the first half of 2015. JD Sports Fashion acquired that business, which consists of the Millets and Blacks chains, out of bankruptcy in 2012.

“There has been a small improvement in margin as we start to see the benefits of aligning the merchandising and commercial disciplines of the Outdoor team with the core JD team,” Cowgill said. “More material improvement in margin will be a core deliverable over the longer term and will require brand support, particularly in terms of enhanced levels of product differentiation.”

The British financial press reported in mid-August that JD Sports Fashion was considering bidding on Go Outdoors, a private equity backed outdoor specialty retailer that hired KPMG in May to help it assess strategic options for financing growth.

JD Sports Fashion ended the period with in excess of £200 million in cash to fund future expansion, including an £18-million expansion of a warehouse in Kingsway. Inventories were valued at £296 million, up 17.9 percent from a year earlier.

ATHLEISURE, ACQUISITIONS PROPEL U.K.’S JD SPORTS FASHION

Photo courtesy JD Sports Fashion


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