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Analyzing The Current Climate Of Athletic Retail

It seems that it’s the sporting goods retailer’s turn to be under the microscope.

While the middle-market store has been under pressure for the past few years, an onslaught of athletic retailer bankruptcies since October 2015 has turned attention to the health of the sporting-goods category.

This week, Vestis Retail Group declared bankruptcy and shuttered its Sports Chalet chain. Eastern Mountain Sports and Bob’s Stores are also affected by the bankruptcy.

Sports Authority made headlines when it declared bankruptcy in March. The firm is aiming to reorganize as a company as a last-ditch effort to salvage the business.

City Sports dissolved its business in October 2015.

So what do the closures say about the athletic market, if anything? Experts say the pressure facing the sporting-goods category stems not from a slowdown in consumer spending, but external factors such as e-commerce, brands opening their own stores and that the category had yet to correct itself in terms of size.

“The bankruptcies in the space are really more about the state of disruption in the industry,” said Jeff Van Sinderen, analyst with B. Riley and Co. “Athletic footwear and apparel continues to be pretty healthy and closure of excess retail should make the space healthier over time.”

Just looking at last year, athletic footwear sales grew 8 percent, according to The NPD Group. Apparel continues to make gains, though golf and equipment are soft.

Despite the overall health of the sector, with the number of regional players calling it quits, outstanding debt will continue to stack up and could be a challenge for brands. The Sports Authority alone owes Nike Inc. $47.9 million and Under Armour Inc. $23.2 million. Brooks Sports Inc. is owed $2 million, and New Balance is owed $1.6 million.

“Receivables are always a challenge in bankruptcies, but the major brands will take whatever hit they need to and move on,” said Van Sinderen. “That said, it can be troublesome for the smaller or weaker brands.”

Big brands might weather the storm a bit better than smaller ones, but an effect of the closures could be brands doubling down on who they partner with.

“Nike is a $30 billion dollar company, $47 million is chump change for them,” said NPD Group sports industry analyst Matt Powell. “I think we’re already seeing brands put a lot of emphasis on own-store growth and e-commerce, and I think this will only increase investment there.”

Antony Karabus, CEO of HRC Advisory, said he sees the market continuing to shrink in terms of number of businesses, but not necessarily in location thanks to the closures. He pointed to the outdoor market as the next to start shuttering, with stores such as Gander Mountain, Bass Sports, REI and Cabela’s fighting for market share.

“It’s another reason for brands to be more selective on who they distribute, too,” he said. “They don’t want another loss and if they deliver to their own stores and their own e-commerce or stronger retailers, the chance of losing money is minimal. We are going to see fewer channels, but not fewer locations.”

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