The Cost of Doing Business in Team Sports

How does your business stack up against other team dealers around the country? An exclusive NSGA survey allows dealers to compare.

Things are different than they were a few years ago.” That was the understatement of the day from Tom Doyle, director of research at the National Sporting Goods Association (NSGA), who presented the results of the association’s “Cost of Doing Business & Increasing Profitability” report at the recent NSGA Management Conference and Team Dealer Summit in Tampa, FL.

But, it appears, the more things change the more they remain the same in the world of team sports. “The team business is really a simple business,” said Doyle. “We go to schools, make sales, the schools pay us, we pay our vendors and we have something left for ourselves at the end of the day.” At least, he added, that’s the way it is supposed to work, but having that “something left” has become more difficult in today’s challenging economic situation.

To discuss his findings, Doyle convened a panel of leading team dealers – Dan Dickman, Kesslers Team Sports; Bob McArthur, Johnny Mac’s Sporting Goods; and Ron Stein, Frank’s Sport Shop – to provide further insight into how exactly team dealers are faring these days.

Margins … There has been a certain stability in the cost of doing business (CODB), margins and profits, said Doyle. According to the NSGA research, in 2004 margins averaged 32.8 percent and profits 2.9 percent. In 2008, the most recent full year of the study, dealers reported margins of 32.2 percent and profit also at 2.9 percent (2006 numbers were a little more positive, 31.7 percent and 3.8 percent, respectively).

Stein: “Our margins are a little better than that average and our greatest challenge is on the expense side.”

McArthur: “I’m happy to say our margins are little higher than the industry average. Our expenses are higher, though, and we have looked at everything from benefits to trash hauling to inventory to keep them under control.”

Dickman: “We are slightly improving our margins due to cost controls. For the future we are seeing minimal organic sales growth from the existing sale force.”

Sales Growth Strategies … Most dealers look to expand sales by growing their customer base, implementing an Internet strategy and, said Doyle, in an area key to the team business, building customer loyalty so they don’t move to other sales outlets.

McArthur: “We have experimented with technology in order to make life easier for our road salespeople. We are also leveraging our retail stores to build programs where schools can get rebates at retail if they make a team purchase. We are upgrading our software system to make ordering less labor intensive.”

Dickman: “The player-paid aspect of team sales is growing. We are also making sure we penetrate deeply into each account and not just swooping into obvious sports. We want it all. The Internet is finally catching up with team sports; we fought it long enough, but it is here to stay.”

Stein: “Building loyalty is one thing, but if you are already strongly penetrated it is tough to do more. And you need to have an Internet strategy. One will complement the other.”

Cost of Goods Sold … Recognizing budget constraints at schools, Doyle said that most team dealers are partnering more with their vendors – including limiting the number of vendors – in order to offer more to their schools and to control their own costs.

Dickman: “We plead for increased discounts from our vendors, but we know they are fighting the same economy we are. We try to go narrower and deeper in the inventory we are stocking, but the challenge is that the vision on the front end is getting cloudier and cloudier and it makes it tougher for us and vendors to handle inventory control.”

McArthur: “We will align ourselves more closely with vendors for discounts to pass along. It is getting more difficult to collect money from our customers, although there has always been a trust factor that a sale will be made and a PO will follow.”

Stein: “Late ordering is becoming the norm and we are doing more individual programs for the kids. Our biggest problem with vendors that are going direct. That is a tremendous issue for us.”

Cutting Expenses … All team dealers are looking at all avenues to cut costs, although so many fixed costs make that a real challenge, Doyle pointed out. The NSGA survey indicated that the industry average was payroll (68 percent), occupancy (11 percent) and G&A (21 percent). Some dealers have a good handle on cost savings, though.

Stein: “We go through all of our expenses periodically — Fed Ex, credit card processing, that sort of thing. If you save 10 percent on expenses it is just as good as increasing sales 10 percent.”

McArthur: “We don’t look at cutting staff, although we have had pay freezes in the past. Every possible expense we have is reviewed to make sure we are on line with similar businesses.”

Dickman: “Even little, simple expenses are reviewed. Our greatest cost impact is personnel, but we don’t want to cut people. We do look to grow without adding back-office support.”

Sales Per Outside Salesperson … The average sales volume of a team roadman is $520,000 in 2008, up slightly from $515,000 in 2004. The key for dealers, said Doyle, is how to improve their productivity.

Stein: “We should spend more time training our salespeople. If you have better people you will have better sales.”

Dickman: “We put a lot of effort into marketing materials for them. We give them the tools they need to be more efficient, including doing less back-room work.”

McArthur: “We are utilizing technology to make them more efficient, including a new software system. And we encourage them to get deeper into their accounts. A lot of dollars can come out of a single account if they make the effort to reach deeper.”

Current Conditions … The NSGA survey covered 2008 as the most recent timeframe, so Doyle asked the panel for a brief report on the current (2009-10) situation in their team business.

Dickman: “We have seen an improvement in margins, but sales are flat. There has been bottom line improvement due to a couple of years working on SGA.”

Stein: “2009 was a soft year.”

McArthur: “2008 was the bottom, 2009 was better and we are looking for 2010 to be even better.”

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