Sports Authority declares bankruptcy in competitive market

During a time when individuals are more health conscious than ever, and going to the gym has become a daily routine for many, the latest fitness fads are constantly being tested.

Whether it is an app that tells you to move every 30 minutes or a store that swears by their brand’s innovative sports clothing, the health and wellness industry has become a lucrative goldmine for both old and new companies alike.

However, a company must stay current by outpacing consumer demands for lifestyle improving tools in order to stay ahead of its competitors. On March 2, Sports Authority filed for Chapter 11 bankruptcy in Delaware, demonstrating the difficulties some companies face in this extremely competitive industry.

Sports Authority  is set to close approximately 140  locations nationwide due to the depleting budget in a competitive sports market. Photo by Jessica Arias.

Sports Authority is set to close approximately 140 locations nationwide due to the depleting budget in a competitive sports market. Photo by Jessica Arias.

Just as athletes must always have an edge over competitors, so must similar lifestyle companies, especially those that are primarily brick-and-mortar retailers. Now with the ability to purchase just about anything online, consumers do not have the same need as they once had to travel to a retail location for the purpose of simply buying sports equipment.

Although it might be a bit pricier if you factor in shipping and handling, customers are willing to lay out the extra cash for the convenience of having the package delivered straight to their door. Sports Authority has a website in which customers can purchase pretty much the same items as in stores, though it does not give customers the same type of experience as trying out the latest golf club straight off the shelf. This lack of experience creates a challenge to draw customers in to purchase something from that particular store if it failed to leave a lasting impression on them.

Sports Authority also seems to have lost its niche among sporting goods stores in the increasingly competitive industry. Although it is one of the most popular stores with about 450 locations in 41 states before future bankruptcy closings, there seems to be some trademark missing that would attract specific customers.

With competitors such as Modell’s and Dick’s Sporting Goods, it is imperative that the company offers something unique to customers that would make them want to buy from it rather than one of these other industry leaders.

Michael Foss, CEO of Sports Authority, addressed potential concerns in a press release written to customers.

He wrote, “we have decided to utilize the Chapter 11 process to implement a financial and operational restructuring that we believe is necessary to help us become an even better place for our customers to shop for sporting goods.”

During this year, the company will close about 140 locations, but appears confident in the letter that this will be one of the only changes customers will notice during their experience shopping with Sports Authority.

Its customer rewards program, The League, and even the company credit card offered to frequent customers will not lose value or be adversely affected in any similar way according to Foss.

Since the bankruptcy filing gives certain protections to Sports Authority, creditors are significantly limited when it comes to initiating proceedings as a result of large past due balances.

For example, the sporting goods retailer owes Nike roughly $47 million and Under Armour over $20 million, two if its largest suppliers.

Although this would be a large debt Sports Authority would be defaulting on, Under Armour in its own press release did not show significant signs of worry.

The brand did not modify any budget projections made at the start of the fiscal year and does not believe that the loss of such receivables will so negatively impact the company that customers would likewise be impacted.

Easing their reaction is a new agreement between Foot Locker and Under Armour that the brand feels will increase customer demands. They will be developing new products, as well as a new way to deliver them to customers who shop at Foot Locker locations. This kind of development is what could help Sports Authority get back on its feet during the restructuring process.

With the burden of paying millions of dollars worth of debt gone, the retail chain can now focus on resurrecting its reputation. Changes include revamping the company’s website and improving the shopping experience as mentioned by Foss in the press release. However, closing locations results in nationwide lay-offs, thus resulting in other impacts as well. It will take more than just a pleasant shopping experience to get the company back in a stable and profitable state, and therefore, a well-thought-out restructuring plan is needed.

Sports Authority’s Chapter 11 filing comes shortly after American Apparel defaulted on its debt putting the brand in a very similar position. With online retailers and lazy consumers, it has become increasingly difficult for such companies to remain competitive with the online market.

In order to recover, both must have a solid plan to restructure and must make significant improvements internally.

March 14, 2016

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