Dick's Sporting Goods, Chapter 7: Product Differentiation

Chapter Seven of our book is all about product differentiation…something DSG excels at!

In DSG's annual report to the SEC, they list some of their strategies and reasons for differentiation.

"Brand Partnerships. We carry a wide variety of well-known brands, including adidas, Callaway Golf, Columbia, Nike, Remington, TaylorMade-adidas Golf, The North Face, Under Armour and Wilson. In addition to the cost efficiencies of shared investments with our brand partners, we seek to leverage our partnerships to offer authenticity and credibility to our customers, while differentiating us from our competitors. We partner with our brands on important marketing initiatives and product launches, in addition to leveraging athletes that the brands bring to us for our marketing campaigns. Our brand partnerships also provide us with access to exclusive products and allow us to collaboratively develop enhancements that differentiate our customers' shopping experience, such as our brand shops, which provide our customers with a wider and deeper selection of products from our key brands, or co-branded microsites to enhance our customers' online experience."

In the list of ways that a firm can differentiate their products listed in Table 7.1 "brand partnerships" covers many all in one step. Making the same product more affordable at DSG than its competitors, consumer marketing, product reputation, product features, linkages with other firms and product mix could all be found in DSG's "brand partnership" strategy.

"Omni-channel Development. We are upgrading site functionality, expanding content, investing in new capabilities and beginning to leverage our store network to provide customers with an enhanced shopping experience that enables our customers to buy and receive products where, when and how they want. We believe that leveraging all of our sales channels to deliver a consistent, seamless and high-quality customer experience across our stores, on the web and via mobile technology will differentiate us from our online-only competitors." 

In addition to all of the before mentioned ways to differentiate DSG adds distribution channels to that list. One of the reasons Dick's Sporting Goods has not fallen to the monster Amazon like many other competitors is because it has created and continually improved its online experience.

"Private Brands. We also offer a wide variety of private brands such as adidas baseball, DBX, Epic, Field & Stream, Fitness Gear, Köppen, Maxfli, Nickent, Nishiki, Quest, Reebok (performance apparel), Slazenger (golf and racquets), Top-Flite, Umbro (performance equipment, footwear and apparel) and Walter Hagen. Our private brands and other exclusive products offer our customers products that they cannot find anywhere else. Our private brands also offer exceptional value and quality to our customers at each price point and obtain higher gross margins than we obtain on sales of comparable branded products. Our private brands are designed and developed to offer our customers differentiated assortments from our competitors. We have invested in a development and procurement staff that continually sources products targeted specifically to our customers' needs." 

"Private Brands" is the last example I will use. Having the sole right to sell high quality products that have proven themselves in the market is another example of how DSG differentiates itself. This adds to their product mix and will attract loyal customers who have faith in a certain brand. 

Sources:

http://www.sec.gov/Archives/edgar/data/1089063/000104746913003238/a2213667z10-k.htm

Dick's Sporting Goods, Chapter 6: Cost Leadership

Cost leadership is defined as gaining advantages by reducing a business' economic costs below all of its competitors. For a company to be successful, a company must develop a system that is beneficial in a way that allows them to maintain and control their costs in competition with their competitors. The first step that DSG took to lower costs was to build distribution centers. DSG currently has four distribution centers across the US. They are located in Smithton, PA, Plainfield, IN, Atlanta, GA, and Goodyear, AZ. Having multiple distribution centers strategically located allows for DSG to have its merchandise readily available while not incurring extra costs of another middle man when ordering and receiving the goods from the multiple brands they sell.

Another way DSG remains atop the cost leadership pyramid in the sporting goods world is through having the latest inventory control systems. PDTs, otherwise known as portable data terminals, can be found in every store that Dick's calls home. These aren't large machines, like the name might suggest. These are handheld devices that keep up with inventory in each store. These devices scan for prices, print labels, have a history of every type of item that DSG has ever sold, and can give an employee access to other store's inventories. Having all of this information readily available at the click of a button allows DSG's upper management to control inventory flow to more profitable stores of certain items. In this industry, and most every business today, the quicker you can get market information, the more money you are going to make, allowing cost leadership to set in.

In an excerpt from business week…

"Year over year, Dick's Sporting Goods Inc. has been able to grow revenues from $5.2B USD to $5.8B USD. Most impressively, the company has been able to reduce the percentage of sales devoted to cost of goods sold from 69.40% to 68.52%. This was a driver that led to a bottom line growth from $263.9M USD to $290.7M USD."

This reduction of cost of goods sold is evidence that DSG has helped differentiate itself from the sporting retail pack as a cost leader. 

http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=DKS

http://www.dickssportinggoods.jobs/distribution-center-jobs

Dick's Sporting Goods, Chapter 5: Evaluating Firm Strengths and Weaknesses: The Resource-Based View

Under the VRIO framework, the question of imitability and having a sustained competitive advantage came to mind when trying to find what separated DSG from the rest of the field.

Although I have touched on this area of the company before, it is worth reinforcing to show DSG's dominance over the past few years. DSG was labeled "best in breed" by the stock research powerhouse Morningstar. It was awarded this honorary title because of its focus on high-end athletic needs.

The article states…

"The company’s competitive advantage consists of its emphasis on high-performance products designed for serious athletes/enthusiasts, rather than cheaper goods for casual participants. Nevertheless, you can buy products at various skill and price levels. 

But Dick’s focus on higher-quality, higher-price products makes it more profitable than its rivals. It also lessens the competition Dick’s faces from other sporting goods and general merchandise retailers who don’t share that emphasis."

The more profitable DSG becomes, the more of a competitive advantage is gains on its competitors, which are becoming fewer and fewer every year, thanks to consolidations and the online retailers stealing some of the profits. The only question is can they continue to keep their edge. Internet sales and online competition seem to be the only thing that could potentially slow them down, as discussed in my last article. I don't see an imitator becoming a threat to Dick's anytime in the near future. 

http://www.newsmax.com/Companies/Dick-s-Sporting-Goods-DKS/2012/02/29/id/431009

Dick's Sporting Goods, Chapter 4: Evaluating Environmental Opportunities

One of the areas of discussion in this chapter is that of consolidation. It focuses mainly on small to medium sized stores in the same or similar industries and their struggle of when to stay fragmented or when to join as one to become more profitable.

Dick's Sporting Goods has come a long way in the last few years. They have showed consistent growth and show no signs of slowing down. From having two stores in 1970, to boasting over 480 stores in 43 states, not including its 81 Golf Galaxy and new Field & Stream shops, DSG has an ultimate goal of around 900 stores with more attention to being more of a national power, rather than having most of its revenues produced on the east coast.

DSG began buying up its competitors in 2004 with the purchase of 48 Gaylan stores throughout the midwest. Not long after in 2007, DSG acquired Golf Galaxy, who became a fully-owned subsidiary. Later that year, DSG bought out Chick's,  weathering through many headline jokes of "Dick's bought Chick's" who held a large base on the west coast. It is also a wholly-owned subsidiary. After purchasing the intellectual property rights of Field & Stream from the magazine, Dick's opened its first F&S shop in early 2013 with immediate plans to open 2 more in the near future.

http://www.popcitymedia.com/companies/dicks1028.aspx

http://www.bizjournals.com/cincinnati/news/2013/04/10/dicks-sporting-goods-opening-2nd.html