AT FRIEDRICHSHAFEN 2016, EUROPEANS SEE UPTICK IN SALES ... · Lotto, Jeep, Camel and Active,...

VOLUME 1 | ISSUE 2 JULY 18, 2016NEWS, ANALYSIS AND INSIGHT FOR THE ACTIVE LIFESTYLE EXECUTIVE

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AT FRIEDRICHSHAFEN 2016, EUROPEANS SEE UPTICK IN SALES WITH A FEW UNCERTAINTIES

SGB was live in Friedrichshafen, Germany this week, getting a perspective on the outdoor industry from across the pond at the 2016 OutDoor show.

While last season’s weak early winter (in Europe and North America) and plenty of talk surrounding Brexit added some uncertainties, the general mood was optimistic. Europe remains a core outdoor market, particularly in the north, and it showed at the trade show, which kept its hallways crowded throughout the event.

Operator Messe Friedrichshafen fills near-ly a million square feet of space across a doz-en or more hangars on the grounds of the Friedrichshafen airport. And nearly all that space was filled with core outdoor companies — with less diversity in fitness and watersports than we’ve seen trending in the U.S.

Modest Growth In 2015; 2016 Off To A Good StartOn day one, the European Outdoor Group (EOG) — akin to the Outdoor Industry Association (OIA) in the U.S. — released

highlight figures from its State of the Trade report estimating that the European outdoor market grew by 2.1 percent in dollars and 1.7 percent in units during 2015.

“The year was characterized by a relatively healthy spring/summer season, but a weak-er second half, which affected the full figures,” officials said. “Apparel was impacted most, while other categories proved to be more resilient.”

The EOG estimated that sell-in value for 2015 was €5.3 billion (which it gathers from 111 brands across Europe), with a sell-through value €11.2 billion.

By country, the two largest markets, Germany and France, grew sales by 2.2 percent and 2.5 percent respectively, while the third largest, the U.K., lagged slightly with a growth of 1.8 percent. In terms of regions, South-ern Europe and Eastern Europe performed best, growing by 2.3 percent and 2.2 percent, respectively.

Hardgoods sales performed better than soft-goods in 2015, according the report, with back-packs as the fastest growing category. Apparel, which represents half of the market value, lagged behind, growing only 1.2 percent. (Con’t Pg. 2)

Photos courtesy Messe Friedrichshafen; charts courtesy European Outdoor Group

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“We have experienced two consecutive difficult winter seasons and in that context these results are satisfactory, especially as autumn/winter makes up 54 percent of the market value every year,” commented Mark Held, general secretary of the EOG.

Looking ahead, Held said that a late win-ter (in early 2016) likely boosted sales late in the season and noted that through June 2016, its members reported stronger growth results.

Brexit UncertaintyBritish outdoor brands received extra atten-tion at the show as the country’s recent vote to leave the EU will likely affect some busi-ness practices going forward, but at the mo-ment much remains up in the air, officials told SGB.

“The long-term future is hard to predict and it seems even the short-term news is changing every day,” said Terry Stephen-son, marketing manager for U.K.-based brand Montane. “All of our product is made in Asia, so we’ll probably end up shipping direct to Europe from there instead of going through the U.K. But the British have a say-ing you probably know of — ‘Stay calm, and carry on.’ I think that’s the mentality… we’ve come through worse.”

Stephenson said it’s times like these when the brand relies heavily on its membership with the EOG in Euorpe and the OIA in the U.S. to help it navigate the waters.

Many attendees noted that winter weath-er, or a downturn in the overall British econ-omy, would be the bigger effect versus any change in trade policy or open borders.

“I think the initial shock of the vote has past, but there is now some short-term pres-sure on the British pound, which makes things more expensive for us,” said Hamish Dunn, brand director at U.K.-based Moun-tain Equipment. At the same time, that could boost some tourism dollars to Britain as it becomes cheaper for U.S. and European visitors.

Light On Your Back; Light On The PlanetLightweight and sustainable gear were the two most talked about product trends European designers, marketers and executives told SGB.

The sustainability push is being driven largely by Scandinavian and German customers — with everything from DWR to responsible down and leather making practices, Stephenson with Montane said.

For American Brian Thompson, general manager of ExOfficio, he finds that Europe-ans are much more concerned with sustain-ability than in the U.S.

“There’s this fear factor from retailers,” he said. “They see the Greenpeace and activist protests and don’t want to get caught up in it, so they are hedging their bets and asking a lot of questions. It’s moving very fast here.”

Turing to gear specs, lightweight gear remains big in Europe, perhaps even more so than in the U.S. where comfort and glamping are dominating the headlines.

We saw numerous “lightest in the world” claims as brands moved to finer denier fabrics and tighter quarters in tents.

“We see glamping as a big trend for us in Asia, but lightweight is still number one here in Europe,” said Michael Hubertz, marketing manager for Denmark brand Nordisk.

Other trends we noted…

• There’s an increased push in running outdoor gear, particularly in the U.K., as we’ve seen in the U.S., but less so across the rest of Europe. During our time in Germany, Switzerland and Italy, we saw a lot more road bikers than runners. Plus, fitness and outdoor remain more distinct categories here with less crossover than we’re seeing stateside.

•The women’s empowerment push in out-door is alive and well in Europe… check out the hashtag #ThisGirlCan.

• Europe was the birthplace of all those bright, poppy colors in sport and outdoor gear, but as in the U.S., it’s toned down to more muted colors and earthy colors.

• Apparel, while still highly technical and lightweight, is also moving away from the overtly technical look, Thompson at ExOfficio noted, favoring heather treat-ments and softer looks.

• U.S. brands are paying attention to Europe. A lot were present at the show, beyond just the majors. Even The State of Idaho’s Commerce Department had a booth — helping to bring and support six small outdoor brands from Idaho to explore or expand exporting to Europe. In total, more than 960 brands from 40 countries attended the event.

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NEWS, ANALYSIS AND INSIGHT FOR THE ACTIVE LIFESTYLE EXECUTIVE

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FOREIGN OUTDOOR BRANDS GAINING IN CHINA

Global outdoor and athletic brands grew their share of China’s outdoor product market in 2015 as domes-tic brands continue to adjust to growing competition, according to the China Outdoor Association (COA).

The COA’s Annual Market Report estimates retail sales of China’s core outdoor brands grew 5.3 percent, while overall sales of outdoor products grew 12.5 percent in the country. That marked the lowest growth rate for domestic brands ever recorded by COA. The association estimates retail sales of core outdoor products made by Chinese companies grew 10.9 percent in 2014, on top of 16.7 percent in 2013, which marked the beginning of an ongoing consolidation. COA esti-mates sales grew at a compounded annual growth rate of 60 percent from 2001 to 2010.

The trade association now expects retail sales of core outdoor products to grow in the single digits through 2017, accelerate to

double-digits in 2018 and 2019, and surpass 20 percent in 2020.

It also expects online retailers to double their share to 31.5 percent of sales over that period, although much of the growth has come from lower quality, more fashion oriented products. Sales at mall based shops – a channel pioneered by Jack Wolfskin, The North Face and Columbia – are expected to de-cline to 51.8 percent from 62.8 per-cent, while specialty shop sales are expected to slip 5 percentage points to 16.7 percent of retails sales.

The COA Report, which is based on interviews with employees at 50 of the country’s leading core outdoor companies and data gath-ered from public company reports and online markets, breaks out China’s outdoor market into the following four submarkets:

Core Outdoor Brands: This group includes global brands such as The North Face, Jack Wolfskin and Mammut, as well as domestic brands such as Toread, Kailas, B.C. Sports, Mobi Garden and Scaler,

which derive most of their revenue from technical outdoor product. In 2015, this group accounted for 40 percent of the market, or RMB18.8 billion.

Low Budget Outdoor Brands: These brands serve mass marketers such as Walmart, Metro and in-cludes Decathlon’s Quechua brand. They accounted for 25.5 percent, or RMB11.5 billion in sales.

Fashion Brands: This group, which includes such brands as Lotto, Jeep, Camel and Active, generated 18.6 percent of industry sales, or RMB8.4 billion.

Sports Brands: Led by global brands such as Adidas and Nike and domestic brands like Li-Ning and Anta, the segment grew its share of sales to 16.7 percent, or RMB7.5 billion of the outdoor products market.

Sports Brands were able to grow their share in large part because outdoor brands remained focused on right-sizing their inventory and retail fleets in what marked a second year of consolidation

and adjustment that the athletic brands had largely completed in 2013. Growth remained slow in the Fashion and Lower-Budget segments despite rapid expansion by Decathlon, which ended 2015 with 158 stores.

Within the Core Outdoor mar-ket, growth came primarily from a handful of leading brands and 50 new brands, 80 percent of which entered the market by selling direct online. COA noted two data points show that the industry remains in the early stages of consolidation. First, the number of domestic and foreign brands selling core outdoor product grew to 421 and 354 respectively. Second, the mar-ket share of the 10 largest brands increased to 55.9 percent from 55.3 percent.

The report, which was released June 30 at the COA Outdoor China Summit in Nanjing and presented during the Outdoor Show in Frie-drichshafen July 13, forecasts that most core outdoor brands will enter a new growth phase in 2017.

Photo courtesy Mammut


SPORTS AUTHORITY CONSIGNMENT DISPUTE EXPOSES RELIANCE ON BIG BOX RETAILERS

The prolonged and costly litigation between secured lenders and vendors over proceeds from consignment sales at bankrupt Sports Authority has exposed just how reliant sporting goods vendors have become on big box retailers – even when they know their finances are shaky.

Sports Authority’s term lender has been fighting with vendors over how to divide $70 million in proceeds from consignment sales since the day the retailer filed its Chapter 11 bankruptcy petition in early March. Although the parties reached a settlement July 1, the Unsecured Creditors Committee filed an objection to the plan July 7 saying it deprived them of their best, last hope of recovery.

Consignment sales are one of several ways vendors can manage credit risk and retailers can manage inventory risk in the U.S. The technique allows vendors to retain title of their goods until the moment they are sold by a retailer. Conversely, the retailer can return unsold goods to the vendor. When done properly, the technique can be far cheaper than factoring or credit insurance.

It is widely used as a way to get shelf space for perishable items such as magazines and nutritional supplements, as well as sea-sonal items or untested products or vendors. GNC and makers of inexpensive sunglasses use consignment sales to place their products in drug stores.

In Sport Authority’s case, however, it appears many vendors began resorting to consignment sales last year in response to the retailer’s deteriorating financial condition. The litigation in bankruptcy court indicates that in their eagerness to keep selling to Sports Authority, some vendors failed to properly secure their inventory by filing and perfecting liens in each state where they had shipped consignment goods.

“The challenge all suppliers and lenders have is always the yin and the yang of daily operations and running a business,” explained Lee Dierks, a partner at Clear Thinking Group LLC, a consultancy that is currently advising clients in the Hancock Fabrics and Total Hockey bankruptcy cases. “You’ve got to sell stuff to run a business and there is a thin line of how much risk do you take; how much am I prepared to sell to this company and how much am I prepared to lose if they go under?”

In the Sports Authority case, vendors who failed to perfect their liens on consignment goods emerged as a much larger category of unsecured creditors than usual, greatly complicating the bankruptcy process.

Perhaps more importantly, however, noted one observer, the Sports Authority debacle reveals just how dependent sporting goods brands have become on big box retailers.

“You can say everyone in the industry knew they were having finan-cial problems,” noted one industry observer who requested anonymity, “but what are you going to do? You can’t not sell to Sports Authority. You can’t walk away from them. It’s almost as if they are too big to fail. It shows how messed up retail is right now. No one wants to go with the small guys because they don’t have the financing and their owner is 70 years old, but some of the big guys are struggling too. It puts the brands in a tough spot.”

That helps explain why so many brands are moving so aggressively into direct-to-consumer sales.

2.1Percent growth charted in the European outdoor market during 2015, according to a State of Trade report by the European Outdoor Group, released at the 2016 installment of OutDoor Friedrichshafen. The report also recorded a 1.7 percent increase in units for the same period and category.

11.5Billion in sales, or 25.5 percent of China’s outdoor market, accounted for by “Low Budget Outdoor Brands,” which include those sold by mass marketers like Walmart, Metro and Decathlon’s Quechua brand.

29Different languages in which the UFC broadcasts its pay-per-view events. The MMA organization and its highly successful live event broadcasting was bought this week by Hollywood mega-talent agency WME-IMG for $4 billion.

70.2Million dollars reported by Helly Hansen for its 2015 cash flow, which is an improved $13.9 million compared to the company’s cash flow deficit during 2014.

99Dollars a year to be a member of Amazon Prime, launched 10 years ago. Members benefited this year from the second Amazon Prime Day on July 12 when 100,000 plus deals allured shoppers to place 60 percent more orders worldwide than the year prior (setting a new record for the behemoth e-commerce company).

320Sports Authority stores that will continue with going-out-of-business sales, scheduled to be completed at the end of August. This number comes after the retailer negotiated with lenders to allow its liquidation sale process to continue.

960Brands from 40 countries gathered at this year’s premiere European trade show in Friedrichshafen, Germany. This included brands from Denmark, the U.K. and Idaho.

1,000U.S. consumers surveyed by UBS still predominantly favor Nike over Adidas. The gap in brand perceptions reportedly “remains substantia.” Within the survey, Adidas was likened in popularity to Puma, based on Net Promoter Score.

2020Will be the year the China Outdoor Association expects retail sales of core outdoor products to surpass 20 percent. Leading up to the year 2020, the association foresees a lift in single digits through 2017, accelerating to double-digits in 2018 and 2019.

BY THE NUMBERS


AISLE TALK

Adidas Group laid the foundation stone for two new employee buildings at its headquarters in Herzogenaurach, Germany. The expansion includes a new office building for more than 2,000 employees as well as an events building with integrated employee restaurant.

Alleson Athletic appointed John Lavelle as VP of Sales.

Asics America Corporation named former Puma Global Head of Merchandising Andrew Richard as its VP of Regional Sales.

Backcountry.com former CEO Jill Layfield emerged as Co-Founder and CEO of Tamara Mellon, the namesake fashion label of the Jimmy Choo Co-founder.

Bern Unlimited Inc. promoted Jeff Cavicchi, formerly National Sales Manager, to Director of Global Operations.

Bogs Footwear hired Kevin Kious as VP of Sales to lead the brand’s next phase of growth, including in the farm, service and safety channels.

Cabela’s Inc. saw its shares rise $1.43, or 2.7 percent, to $54.08 after the New York Post reported that a sale to Goldman Sachs and Bass Pro Shops is heating up.

Finish Line authorized a new five million share repurchase plan to commence upon completion of the current plan which has approximately 600,000 shares remaining.

HanesBrands completed the acquisition of Pacific Brands Limited, the leading underwear and intimate apparel company in Australia.

Jordan Brand reached a deal with baseball legend Derek Jeter to remain with the Brand, creating the role of ‘Captain’ within the brand’s training category and family of baseball athletes. The Brand will also continue Jeter’s signature RE2PECT line.

Keen Inc. welcomed Tyler LaMotte as the company’s first Global VP of Brand Marketing. Prior to Keen, LaMotte served as Apple’s Senior Marketer of Worldwide Product Marketing.

New Balance Athletics, Inc. secured a landmark victory in its legal battle with Converse over trademark rights related to the PF Flyers Brand.

NikeLab collaborated with Louis Vuitton’s Artistic Director for Menswear, Kim Jones, on a new and colorful collection of apparel and footwear that blends street, sport and travel.

Pelican International appointed Toros Dimitian to EVP of Sales and Marketing.

PMI Stanley gained a new Marketing Director with the hiring of Lisa Wood.

Four executives at Spenco Medical Corporation purchased the company’s footwear and Silicore assets after its insole and 2nd Skin first aid products were sold to Implus.

Sympatex Technologies GmbH appointed Rüdiger Fox as its CEO. Michael Kamm, its CEO since 2010, left the company by mutual agreement.

Taos Ski Valley shared plans for resort industry veteran David Norden to take the helm as CEO beginning July 25.

Marking its biggest sales day ever, Amazon Inc. said customer orders taken during its second annual Prime Day, July 12, surpassed Prime Day 2015 by more than 60 percent worldwide. Sales vaulted more than 50 percent in the U.S.

The event reportedly benefited from a better selection of deals— more than 100,000 promised worldwide— as well as more competitive pricing, greater awareness among shoppers, and a significant increase in Amazon Prime members compared to the prior year. To qualify for the sales event, which was created last year to celebrate Amazon’s 20th birthday, shoppers needed to be Prime members.

Other steps supporting the day were steeper stocks of inventory on key deals. New discounts were rolled out on Amazon every five minutes ver-sus every 10 minutes in 2015. Deals were also spread farther into the day, including more than 800 limited-time “Lightning Deals” launched well into the evening.

Amazon said savings for Prime members more than doubled compared with a year earlier. Amazon Prime, which costs $99 a year, was launched 10 years ago, initially just offering free two-day shipping. Perks have expanded to include access to Amazon’s TV, movie and music streaming services.

“We want to thank our tens of millions of members around the world for making this the biggest day in the history of Amazon,” said Greg Greeley, VP, Amazon Prime. “After yesterday’s results, we’ll definitely be doing this again.”

On its inaugural Prime Day, Amazon sold more units than it did on the previous Black Friday, which at the time was its largest sales day ever.

Among the deal highlights, more than 90,000 TVs and more than two million toys were sold on Prime Day, the company said. It also marked the biggest day ever for each Amazon device category including Fire TV, Fire tablets, Kindle e-readers and Alexa-enabled devices. Amazon said it sold triple the amount of Amazon devices in the U.S. as it did on the original Prime Day. U.S. customers also purchased more than 14,000 Lenovo lap-tops, 23,000 iRobot Roomba 614 cleaning robots, 24,000 Vivere double hammocks, and 200,000 headphones, among other deals.

Meanwhile small businesses and sellers on Amazon offering deals to Prime members saw orders nearly triple year-over-year on Prime Day – both worldwide and in the U.S. Ordering on its mobile app also accelerat-ed compared with the prior year, increasing more than two times.

Wal-Mart looked to capitalize on the buzz of Prime Day by offering free, no-minimum-purchase shipping during the week, as well as a free 30-day trial of ShippingPass—its two-day shipping service that costs $49 annual-ly. The discount giant also noted that its deals were “available for anybody” as opposed to Amazon’s deals being exclusive to Prime members.

It was challenging to determine whether other retailers had ratcheted up their deals given the overall promotional climate currently in the mar-ketplace. Best Buy, however, also referenced its inclusive nature compared to Amazon by touting: “Deals for All. No Membership Needed.”

AMAZON KILLS IT ON SECOND PRIME DAY


will depend on the relative popularity of new product launches.”

• Nike and Under Armour lead in youth: Nike and Under Armour’s brand perceptions were found to be furthest ahead of Adidas with young consumers (16-24 year olds). Under Armour is seen mimicking its success in the U.S. by gathering mindshare with young con-sumers early on in its push into Europe. The delta in Europe between Adidas and Nike remains unchanged compared to 12 months ago. UBS wrote, “In our view Adidas needs to start reducing this gap soon or it runs the risk of allowing Nike to establish long-standing, leading brand preference among these con-sumers. We may even have seen the first effects of the lifetime value phenomenon from the shift in European brand preferences over the last 12 months from Adidas to that which was most pronounced among 25-34 year olds.”

• Footwear pricing power healthy: Leading sportswear brands have focused more on premiumisation in recent years. UBS’s survey suggests that pricing power remains healthy, with more consumers citing ‘good value’ than non-purchasers citing ‘too expensive’ in both Europe and Nike U.S. The data also suggests Adidas may have a greater pricing opportunity than Nike.

*SSI Data, powered by SportsOneSource, collects and analyzes POS data from more than 20,000 retail doors across nine channels of distribution. To learn more call 303.997.7302.

UBS GLOBAL SURVEY FINDS U.S. ATHLETIC SLOWDOWN FEARS “OVERBLOWN”

Citing a new internal survey, UBS said concerns in the marketplace around slowing athletic footwear and apparel growth in the U.S. are “overblown.”

In the report, Michael Binetti said the concerns followed the deceleration in Nike’s reported num-bers and reports of elevated inventories in the channel. The inventory glut is being traced to a difficult holiday selling season for softlines overall, including athletic apparel, as well as the repercus-sions of the Sports Authority bankruptcy filing.

But a U.S. survey of 1,000 U.S. consumers by UBS suggests U.S. footwear demand trends are set to remain solid. Wrote Binetti, “Footwear purchase intent among existing consumers remains solid compared to purchases made over the last 12 months, though not quite as positive as in Europe.”

The data coincides with recent SSI Data* that has shown footwear sell-out reaccelerating to a mid-to-high single digit year-over-year run rate. Nike also commented on June 28 that U.S. con-sumer demand for sportswear continues to feel “very strong.”

Binetti added, “We believe as inventories in the channel improve, demand for new innova-tion from the major brands + our survey show-ing signaling increasing purchase intent will result in athletic category reacceleration.”

The report also found that Nike is still heav-ily favored over Adidas in the U.S. despite recent gains by Adidas. Based on quarterly sales performances and SSI sell-out data, Adidas and Under Armour are taking share from Nike in key U.S. athletic categories. However the scale of gap in brand perceptions between Adidas and Nike/Under Armour “remains substantial.” In

the UBS survey, Adidas was only as popular as Puma based on Net Promoter Score. The survey also suggested key brand perception potential for Adidas lies with under 25 year olds, women and lower income demographics.

“Our hypothesis is that Adidas’ revival in for-tunes has been led by a combination of better execution, on-trend product launches and helped relative to Nike by the increased popularity of lifestyle silhouettes and slowdown in basketball footwear,” said Binetti. “We think the next test for Adidas may lie in the coming months as the Nike innovation machine adapts and responds.”

Beyond the 1,000 U.S. consumers, the UBS Evidence Lab surveyed another 3,000 consum-ers in Germany, France and the U.K. in March/April 2016. This was UBS’ first survey in the U.S. and its second in Europe.

Other findings in the report:

• Footwear indicators positive in Europe: UBS’ second Europe survey showed footwear brand loyalty rates have increased significantly year-on-year and footwear purchase intent is still rising.

• Nike brand perceptions in Europe improv-ing relative to Adidas: Nike’s gain in percep-tion were seen as surprising given Adidas’ revenue outperformance in Europe since mid-2015. Binetti wrote, “The improvement of Nike’s brand perceptions relative to Adidas over the last 12 months suggests that the level of Adidas’ outperformance against Nike in Europe could begin to reduce ahead – much

Photo courtesy Adidas


Sports Authority negotiated a deal with lenders that will allow its liquida-tion sale process to continue. According to bankruptcy court documents, going-out-of-business (GOB) sales would have ended Friday without the agreement.

Under the agreement, pre-petition lenders will take $71 million of the $240 million they claim they’re owed. The deal will provide Sports Authority access to cash that will cover liquidation and ongoing administrative costs. This includes payment in full for vendors that shipped goods after the early March Chapter 11 filing as well as fees to bankruptcy professionals. Landlords will receive 85 percent payment for owed rent for March that has long been in dispute.

In court papers, Sports Authority’s lawyers argued that “even with prudent and conservative administration, winding down jointly administrated cases of this size and complexity will be a substantial undertaking.”

However, substantially all of the cash necessary to fund the reorganiza-tion remains subject to “the valid liens of the prepetition term loan agent.” Furthermore, while Sports Authority will generate funds from the sale of its assets, all such assets are pledged to support the adequate protection claim under the prepetition term loan agreement.

The prepetition term loan agent had asserted a claim that exceeds $240 million. Sports Authority’s own analysis had concluded that the claim should be “substantially smaller.” Further complicating matters, according to Sports Authority, is that various landlords have been assert-ing that they are entitled to immediate payment of millions of dollars of “Stub Rent” for the month of March.

Given the complexities in the case, Sports Authority argued that it “would likely take months of litigation and years of litigation” to resolve both the pre-petition term loan claim as well as the rent dispute. The settlement represents “a hard-fought, arm’s length compromise” and came “after heated and often contentious negotiations that threatened

to bring these Chapter 11 Cases to a standstill (or conversion to cases under Chapter 7.)”

The settlement still must be approved by Judge Mary Walrath of the U.S. Bankruptcy Court in Wilmington, DE. The lending group is led by Wilmington Savings Fund Society. Pre-bankruptcy lenders were Bank of America and Wells Fargo & Co.

Unsecured creditors have long complained that the bankruptcy financ-ing structure overly supports lender claims without providing any new funding to support the retailer’s reorganization efforts. In April, it had ar-gued that the case could be funded by ongoing cash flow from the liquida-tion efforts with the loan only benefiting going to lenders because of the $22.3 million in fees and interest attached to the loan.

Sports Authority filed for Chapter 11 bankruptcy in March, planning to close only about one fourth of its 463 stores. Failing to reorganize, how-ever, Sports Authority chose in early May to liquidate instead. Going-out-of-business sales at its remaining 320 stores have been taking place since Memorial Day and are scheduled to be completed by the end of August.

At a bankruptcy auction in June, Dick’s Sporting Goods won the rights to the Sports Authority’s brand name, e-commerce domain, a loyalty pro-gram with 28.5 million members and a list consisting of 114 million cus-tomer files with a $15 million bid.

Sports Authority also last month at the auction sold a number of leases at the auction and those sales are continuing. Again, Dick’s SG was the biggest player, securing 31 Sports Authority leases, with nearly half in California, for $8 million at the auction.

In a separate motion, Sports Authority revealed lenders have agreed to fund up to $2.85 million in bonuses to unidentified senior executives. Under the proposal, four top executives are in line for up to $1.5 million in bonuses, according to the Wall Street Journal.

The Journal also noted that by Friday, Sports Authority will have paid off its top layer of debt from liquidation proceeds.

SPORTS AUTHORITY STRIKES DEAL WITH LENDERS TO AVOID ALL-OUT LIQUIDATION

Photo courtesy Sports Authority


He said he originally left because he had com-pleted many of his original objectives since tak-ing over as CEO.

“The board of directors has given me a clear mandate to take our iconic brand to the next level,” stated Wetmore in a press release July 14. “Every day our customers are demanding more control over their shopping experience. We must continue to rapidly evolve the Tire to exceed both our cus-tomers’ and our shareholders’ expectations.”

In the past few years, the retailer has been expanding its digital focus, including introduc-ing a number of interactive stores as well as in communications. It released a Canadian Tire print catalogue that had interactive capabilities, experimented with digital flyers and targeted social media ads for Sport Chek.

Canaccord Genuity analyst Derek Dley wrote in a note, “In our view, both Wetmore and Medline were major contributors to Canadian Tire’s success over the majority of the last decade, and we are surprised by the abruptness of today’s announcement.”

Other analysts felt the board trusted Wetmore more with positioning Canadian Tire to capitalize on the rapid shift toward online selling and digital engagement.

RBC Capital Markets analyst Irene Nattel said in a note to clients, “Looking back at Mr. Wetmore’s tenure, it was under his leadership that the current strategy was developed, and it was he who put the team in place that is now delivering the performance we are seeing at CTC.”

Desjardins analyst Keith Howlett stated in a note, “We consider CTC’s digital strategy and its rapid implementation as the rightful top priority. The future is now.”

In a shocking turn, Canadian Tire, the parent of Sports Chek and one of the largest retailers in Canada, ousted its CEO, Michael Medline, less than two years into the job.

The retailer’s board replaced him with his predecessor, Stephen Wetmore. The change-over, which was driven by the retailer’s board, took effect immediately.

“The board has taken a unanimous decision to change the leadership of the company at a time of unprecedented change in the retail industry,” Maureen Sabia, chairman, said in a statement July 14.

Wetmore, who was CEO from January 2009 to December 2014, will step down as deputy chairman of the board, but remain a director. He will also take the title of President.

Medline has been with the retailer for 15 years and took over as CEO on December 1, 2014, replacing Wetmore, who became deputy chairman at the time. Shares of the Toron-to-based company gained about 10 percent since Medline took over after soaring 141 percent under Wetmore’s leadership.

Since Medline became CEO, oil prices have plunged to below U.S. $50 a barrel, creating economic hardship in Western Canada. At the same time, Canadian Tire has faced new U.S. competitors such as Walmart and Lowe’s, which recently merged with home renova-tion retailer Rona. Like many stores in the U.S., revenues across its banners in the re-cent fourth quarter was impacted by the mild winter.

The change comes as Canadian Tire’s FGL Sports’ segment has largely thrived over the last two years with the expectation of the weather-challenged holiday quarter.

In the recent first quarter, Sport Chek’s same-store sales jumped 12.3 percent. Overall, same-store sales for Sports Chek jumped 6.3 percent in 2015 following gains of 10.6 percent in 2014 and 10.3 percent in 2013. The FGL Sports’ seg-ment also includes Hockey Experts, Sports Experts, National Sports, Intersport, Pro Hock-ey Life and Atmosphere.

Recent results have been in line with expecta-tions given the challenging marking conditions, however analysts felt the change was due to dis-agreements over the digital strategy of the com-pany, which also owns the Canadian Tire chain and Mark’s, which sells work and casual wear. These include concerns over the pace of imple-mentation as well as tactics.

“While our short-term priorities are deliver-ing results, the board’s responsibility is the long-term success of Canadian Tire,” added Sabia. “Stephen transformed our company during his previous tenure and laid the foundation for our current performance. We believe he is uniquely qualified to lead the company through the in-creasing complexities of the new world of retail. His appointment as president and CEO is nei-ther an interim, nor a short term, appointment.”

Wetmore previously led the acquisition of Forzani Group Ltd. (FGL). He also accelerated investment in the company’s technology infra-structure and introduced a number administra-tive changes at Canadian Tire’s head office. At the time of initially stepped down as CEO in late 2014, Canadian Tire said he “led the evolution of the Canadian Tire brand and introduced a brand-led culture to the company, while build-ing a creative, innovative management team – all resulting in one of the company’s most excit-ing and fastest periods of growth in its history.”

WHY WAS CANADIAN TIRE’S CEO OUSTED?

Photo courtesy Canadian Tire


a great addition to Central Texas. On July 6, however, the commission voted unanimously to sue Austin Park LLC, which is doing busi-ness as NLand Surf Park.

The vote comes just two weeks after the U.S. National Whitewater Center (USNWC) closed its man-made whitewater paddling course under pressure from county commissioners and health officials and the Centers for Disease Control after its water tested positive for Nae-gleria Fowleri. The amoeba is suspected to have led to the death of 18-year-old Lauren Seitz, who succumbed to meningitis June 19 after visiting the USNWC June 8.

The USNWC’s whitewater course remained closed for the 18th day Tuesday as the park worked with health officials to determine additional treatment options.

“Our goal is to reduce the algae that can grow in the system without using chemicals that can have negative effects for the environment as well as the guest,” reads a July 4 update at usn-wc.org. “The algae is generally not unsafe, but it does create an environment that allows the or-ganisms to grow and avoid the disinfection sys-tems currently in place. There are options we are exploring with our water quality exerts and expect to be very effective in addressing the algae as well as increasing our disinfection capabilities.”

It is unclear whether or by how much the Travis County lawsuit would delay the opening of NLand, which has missed construction dead-lines due to rain delays. The company says it still plans to open this year.

Winmark Corp., the parent of Play It Again Sports, reported net income rose 13.7 percent for the quarter ended June 25, to $5.4 million, or $1.25 per share.

Total revenue improved to $16.3 million from $15.5 million. Of that amount, royalty sales advanced to $10.6 million from $10.2 million and leasing income improved to $4.2 million from $3.7 million. Merchandise sales declined slightly to $625,300 from $686,300 while fran-chise fees improved to $493,500 from $475,000.

The quarter marked a rebound from the first quarter performance. For the six months, net in-come was $10.0 million, or $2.31 a share, down from $10.8 million, or $2.18, a year ago. Sales dropped to $32.5 million from $36.5 million.

“The second quarter was a strong one for Winmark,” stated Brett D. Heffes, CEO. “Steady franchisee performance, increased leasing activity and sound expense control combined to deliver outstanding growth in operating income and per share results.”

As of June 25, 2016, Winmark operated 1,169 franchises in operation under the brands Plato’s Closet, Once Upon A Child, Play It Again Sports, Style Encore and Music Go Round. An additional 74 retail franchises have been awarded but are not open. In addition, at June 25, 2016, the company had a lease portfolio equal to $37.0 million.

According to its 10K filing, Play It Again’s sales slipped 0.9 percent in 2015 to $225 million from $228 million a year ago as the retailer’s net store count dropped by four locations to 297. Twenty-three franchise leases up for renewal in 2016.

PLAY IT AGAIN SPORTS PARENT SEES

Q2 INCOME EXPAND

Photo courtesy Play It Again Sports Springfield, Missouri

NLand Surf Park expressed surprise Tuesday, July 12 when local officials who had cheered its plans to open the nation’s first inland surf park near Austin, TX a year ago voted to sue the company.

Following an executive session July 6, the Travis County Commission voted unanimously to direct the County Attorney’s Office to file a civil suit against Austin Park LLC, pursuant to Texas Health and Safety Code Chapter 341. The statute allows the executive director of the Texas Health and Human Service Commission to reg-ulate places that pose public health risks.

NLand pledged Tuesday not to “open until we can assure our guests the park will meet the highest standards for quality and safety,” accord-ing to an open letter.

“We are disappointed the county commis-sioners would take such drastic measures, with-out explanation,” read the letter. “We look for-ward to creating a win-win solution for Travis County, NLand and most importantly the mil-lions of surfers and surfers-to-be worldwide.”

While the letter was not signed, NLand was founded by and is headed by its CEO, Doug Co-ors, a descendant of Colorado brewing legend Adolph Coors. The project, which has involved creating an artificial wave pool equal in size to nine football fields, is expected to be a showcase for the Wavegarden, a Spanish company that designed it.

In a June 4, 2015 press release announc-ing the park, Travis County Commissioner Margaret Gómez said the parks would mark

TEXAS OFFICIALS SUE NLAND SURF PARK

Photo courtesy NLand Surf Park


Helly Hansen, which was undergoing a cash crisis at the start of 2015, scored a major turnaround last year.

Revenues for the Norwegian ski and sail brand rose 22.4 percent in its year ended December 31, to NOK2.57 billion ($305 million). On a cur-rency-neutral basis, sales rose 12 percent, accelerating from a 5 percent gain in 2014. The sales gain came despite “a difficult trading environment, particularly in Europe,” where Helly Hansen grew its position in its core channels, regions and categories on a full-year basis.

EBITDA jumped 62.7 percent to NOK166 million ($19.7 mm). Gross profit improved 16.1 percent to NOK1.08 billion ($128.4 mm) although gross margins shrunk as a percentage of sales to 42.2 percent from 44.5 percent as a result of an inventory clearance initiative and the strength of the U.S. dollar, which is its main currency for product purchases. SG&A expenses were cut to 35.8 percent of sales from 39.7 percent.

The net loss was reduced to NOK298 million ($35.4 mm) from NOK614 million. The latest year included an impairment charge of NOK18 million ($2.1 mm) versus a charge of NOK364 million a year ago. Restructuring and non-recurring charges amounted to NOK95 million ($11.3 mm) in 2015, versus NOK22 million in 2014.

The turnaround was led by Paul Stoneham, who took over as CEO in January 2015. Stoneham had previously served as CEO of GHD, the hair-care company, and he also had held several brand/category management roles for Procter & Gamble in North America and Europe.

Helly Hansen’s former CEO, Peter Sjolander, led the business through a successful turnaround over his eight-year tenure that included challeng-ing economic conditions but eventually led to an expansion phase, taking the brand into new territories and product areas. Shifting from largely an export/distributor based international business to more of a local approach, Helly Hansen saw dramatic gains in the U.S. and Canada during 2013 and 2014. It also significantly expanded its product offerings over the last decade.

But the brand wound up overstretching itself with moves such as a rapid expansion of its store base in North America and faced a liquidity crisis.

Following his appointment and working with its board, an operational and financial review was undertaken, which resulted in the exit of non-profitable businesses, clearance of obsolete inventory, clean up of leg-acy financial issues, the revoking of brand licenses, accelerated store clo-sures and the introduction of a new senior management team. The com-pany also scaled back its product lines by a quarter to focus on best sellers.

“We focused on the basics of getting cash in as quickly as we could,” Stoneham told the Financial Times.

“Quite frankly the first three to four months weren’t particularly pleas-ant,” he added. “We’ve taken the business from being a sales-driven com-pany in the last 10 years to a more consumer-focused one.”

During the period, Ontario Teachers’ Pension Plan (Helly Hansen’s largest shareholder) increased its equity position by acquiring the equi-ty of the minority institutional shareholder, while also supporting Helly Hansen in the repurchase of its public bond in full. Teachers’ first invested in the company in 2012, buying a three-quarters stake from the Nordic buyout group Altor.

As a result, Helly Hansen’s net working capital was reduced to 31 percent of sales at the close of the year from 52 percent at the close of 2014. Operating cash flow improved by NOK117 million ($13.9 mm) to NOK591 million ($70.2 mm) versus a cash flow deficit of NOK474 million in 2014.

The company said it is now embarking on a new growth strategy.“Following a period of sales led expansion, we are now building a more

consumer centric company with a new growth strategy that focuses the business on six categories, core geographies and the right channels to pres-ent our brand,” said Stoneham in a statement. “This will enable us to de-liver sustainable growth well ahead of the market, building Helly Hansen’s position as a leading global technical outdoor brand. Our 2015 results, and early 2016 performance, provide some early evidence that the new focus on the core will allow the team to deliver sustainable healthy growth.”

Tapping into Helly Hansen’s 139-year Norwegian heritage, the new growth strategy is based on the ethos: “Helly Hansen makes professional grade gear to help people stay and feel alive.”

Plans call for the brand to refocus on core categories, countries and channels; strengthen its brand awareness with professionals; and build on its position as a leader in providing technical performance products in the mountains and on the sea, led by skiing and sailing while also build-ing a premium position in mountain, base-layer, urban and work-wear. Another continued focus will on building a consumer-centric organiza-tion through investments in brand development and innovation, funded by improved financial performance and a leaner supply chain.

For the current year, Helly Hansen expects to continue its positive momentum with growth in sales and EBITDA across sport and workwear, supported by strong bookings. Due to the decision to focus on core cat-egories, including the reduction of the product line by 25 percent over the next 18 months, a slowdown in organic revenue growth to mid-single digits is anticipated, but growth is estimated to be “well ahead of the market by late 2017.”

HELLY HANSEN DELIVERS TURNAROUND YEAR

Photo courtesy Helly Hansen and Ambassador Mats Grimsaeth


Heralded as the “largest deal ever in the history of sports,” UFC, the fast-growing professional mixed martial arts (MMA) organization, reached an agreement to be acquired by Hollywood mega-talent agency WME-IMG for $4 billion.

The comment on the size of the deal came from UFC Chairman and CEO Lorenzo Fertit-ta, who along with his brother, Frank, purchased UFC in 2001 for a measly $2 million.

By all accounts, Fertitta is correct in his as-sessment of the historical significance of the deal in sports. The Los Angeles Dodgers were bought out of bankruptcy for $2.1 billion in 2012, making it the largest sales price on record for a single franchise. Close behind was the $2 billion purchase of the Los Angeles Clippers by former Microsoft CEO Steve Ballmer in 2014.

Back in 2001, MMA featured bone-crushing, blood-smearing action that was dismissed as “human cockfighting” by Sen. John McCain. But as majority owners, the casino-owning brothers will be now paid handsomely in the deal.

UFC’s Don-King-like President Dana White, who also stands to smartly benefit from the sale with a 9 percent ownership stake, was the first one who persuaded his wealthy high school bud-dies to buy the cage fighting promotion in 2001.

Beyond extensive promotion, the Fertit-ta brothers and White increased regulation of fighters, streamlined combat rules and insti-tuted drug testing to help legitimize the sport. Many of its competitors in the sport have also been bought out or eliminated. MMA is cur-rently regulated in all 50 states, with a New York debut coming in November, while UFC stages worldwide events and counts Ronda Rousey and Conor McGregor as mainstream sports stars.

The purchase price shows the ability of sports to reach viewers across many platforms, with UFC not only benefiting from its popular live broadcasts, but also video games, merchandise and ticket sales to its live fights.

“The TV ecosystem is evolving and this un-derscores the cliché that ‘content is king’ — although certain content is more valuable than others,” said Eric Katz, media analyst with Wells Fargo Securities, told the Los Angeles Times. “Sports is appointment-viewing, and generally watched live, and that is why it is becoming more valuable.”

WME-IMG, is a private company with more than 800 owned, operated and/or commercially represented events in entertainment and sports. WME-IMG was also UFC’s operating partner.

The new financial backing from WME-IMG and its marketing reach seem certain to lead to even more growth and global prominence for MMA’s dominant promotion. The UFC already has a full slate of fights scheduled this year, all building toward its long-awaited debut at Madi-son Square Garden in November after New York legalized MMA earlier this year.

Lorenzo Fertitta said in a statement, “We’re confident that the new ownership team of WME-IMG, with whom we’ve built a strong relationship over the last several years, is committed to accel-erating UFC’s global growth. Most importantly, our new owners share the same vision and pas-sion for this organization and its athletes.”

“We’ve been fortunate over the years to rep-resent UFC and a number of its remarkable ath-letes,” said WME-IMG Co-CEOs Ariel Emanuel and Patrick Whitesell. “It’s been exciting to watch the organization’s incredible growth

over the last decade under the leadership of the Fertitta brothers, Dana White and their dedicat-ed team. We’re now committed to pursuing new opportunities for UFC and its talented athletes to ensure the sport’s continued growth and suc-cess on a global scale.”

Silver Lake Partners and KKR will join WME-IMG as new strategic investors, along with MSD Capital, L.P. and MSD Partners, L.P. which will provide preferred equity financing.

Upon closing, Lorenzo Fertitta will step down from day-to-day operations, but Frank Fertitta and Lorenzo Fertitta will both retain a passive minority interest in the organization.

UFC President White cashed out at an undis-closed sum for his percentage of the company, then repurchased an undisclosed percentage with WME-IMG. He told The New York Times he will serve as “president, owner and day-to-day [promoter]” for the new ownership group to remain the face of UFC. He added that “noth-ing will change” regarding his aggressive pro-motional style.

UFC marked UFC 200 at Las Vegas’ T-Mobile Arena on July 9, generating a company- record live gate of $10.7 million. It produces more than 40 live events annually and is the largest pay-per-view event provider in the world, with broadcasts in more than 156 countries and territories to nearly 1.1 billion television households worldwide, in 29 different languages, according to its statement.

The one brand that continues to benefit from UFC’s growing popularity is Reebok, which in December 2014 reached a six-year partnership to become the exclusive outfitter and apparel provider for the world’s leading mixed martial arts organization. On July 12, a day after the deal was announced, Reebok introduced a new advertising effort starring Ronda Rousey as part of its ‘Be More Human’ campaign designed to encourage consumers to empower themselves through fitness.

In a statement released to the media, Reebok said its partnership is unaffected by the change in ownership. Reebok wrote, “We are continu-ing to work hard to develop the best possible products for UFC athletes and fans and are extremely excited about the future growth of the sport.”

The size of the deal and MMA’s increasing popularity may also invite greater scrutiny. The NFL and NHL regularly receive attention around the level of violence during games, injuries sustained by players including con-cussions, and the off-field activities of their athletes, so it wouldn’t be a surprise if the UFC follows suit.

UFC CASHES OUT

Photo courtesy UFC


PUBLISHER’S LETTER

For nearly 14 years, the active-lifestyle industry has relied on SportsOneSource to deliver original news, analysis and insight for executives.

This week marks the first issue for SGB Executive –– a rollup of the week’s Executive News.

SGB Executive has replaced Sports Executive Weekly and The B.O.S.S Report but will deliver the quality news you’ve come to trust from SportsOneSource, plus additional benefits to subscribers.

For starters, SGB Executive will be delivered to subscribers’ inbox every business day for the latest in-depth and exclusive coverage that our editors provide. Content will be linked stories on our new website, optimized and adaptable for any platform — desktop, tablet or mobile.

And for those who still enjoy the weekly wrap-up of executive content in digital PDF form, we will continue to provide that, too, at the end of every week in SGB Executive with additional benefits. Here’s what you can expect:

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Finally, we want to thank all of you, who have supported Sports Executive Weekly and The B.O.S.S. Report over the past 14 years, and we look forward to your continued support with SGB Executive.

As the sporting goods, outdoor, bike, fitness, yoga, wellness, snow sports and sportsman’s industries increasingly cross paths within the active-lifestyle space, we know executives want to be up-to-date and informed in each segment. Today’s outdoor leaders keenly follow what’s happening in fitness, while sporting goods executives are in tune with their customers driving toward wellness.

We will continue covering it all through SGB Executive, delivering the executive-level news, analysis and insight that’s earned us your dedicated readership, trust and partnership over the years.

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