The sporting goods industry is dying — and that's great news for Dick's
Dick's Sporting Goods is running out of competitors — and that's great news for the retail chain.
Many of the brand's rivals have fallen on hard times, says Paul R. La Monica at CNN Money.
Sports Authority and Sport Chalet have gone out of business amid an overall downturn in the athletic equipment industry, and Golfsmith recently filed for bankruptcy.
There are myriad reasons for the downturn in the athletic equipment industry. Cash-strapped millennials aren't interested in buying golf equipment and would prefer to spend their limited funds on electronics instead. And when people do buy sports equipment, they increasingly prefer to do so online.
Still, being the last man standing is working out for Dick's Sporting Goods: Shares are up 36% since May, when Sports Authority announced it would shut down.
"It's pretty evident that the broader industry is consolidating," UBS analysts wrote in a recent note to clients. "This is likely to put the industry's leading retailer (Dick's) in a much stronger position over the long-run."
According to the analysts, 70% of all Sports Authority locations and 79% of all Sport Chalet locations are within 20 minutes of a Dick's Sporting Goods. That means that displaced customers likely will go to Dick's in the future, boosting business.
Dick's is also benefitting from the growing athletic apparel market, especially in sneakers.
US athletic-footwear growth has accelerated by nearly 10% in the past two months, according to analysts at Morgan Stanley.
Adidas is leading the category after reviving its classic sneakers like Stan Smiths and Superstars, analysts at Jefferies write. Once Adidas attracts customers to the shoe section, those customers often make impulsive purchases from other brands as well.
Jeffries analysts also say that basketball shoes are seeing a resurgence after the Cleveland Cavaliers' NBA Finals win — another trend that would benefit Dick's.
But UBS analysts warn that the overall weakness in the apparel market that is hurting department stores like Macy's, Nordstrom, and Sears could also spell trouble for Dick's. The company could also be pressured to raise wages for workers, which could hurt profits.
"The [retail] space won't be immune to challenges in 2016," the analysts wrote. "Real wage growth will be a double-edged sword, likely spurring further gains in spending, but also pressuring expenses for those exposed to low skilled workers."