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Dick’s Approaches Holiday With Caution Amid Vietnam Uncertainty

Dick’s Sporting Goods has been on a hot streak in 2021, reeling in almost $500 million in profit during the second quarter alongside $3.3 billion in total sales. But even the best performers know that they must taper their own expectations for the rest of the year, amid a supply chain that has been stricken by exponentially rising container costs and factory shutdowns.

Since “a fair amount” of athletic apparel and athletic footwear comes out of Vietnam, the retailer expects slower second-half sales relative to the first six months of the year, particularly in the fourth quarter, Dick’s chief financial officer Lee Belitsky said. Although Dick’s accounted for theses hiccups in its guidance, which it raised twice this year, the company has continued to approach the situation with caution.

“We’re expecting higher supply chain costs, as we get into the back half of the year as well,” Belitsky said during the Goldman Sachs Global Retailing Virtual Conference. “That’s been embedded within our guidance, but we’ve managed through it as well as we can. I think we’ve kind of punched above our weight, in terms of being able to get products in from overseas, and keeping aggressive product flow into our stores to support the significant sales increase.”

As has been a common theme throughout the apparel industry, promotions are few and far between as pent-up customer demand has mitigated the need to sell off excess inventory quickly. And par for the course, Dick’s believes it can raise prices to cover some of the increasing supply-chain costs.

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“Thus far, the cost increases that we’re seeing have been relatively limited, and primarily, kind of in the big bulky hardlines items that we’ve seen this year,” Belitsky said. “We’ll see some more price increases coming as we look out into the fourth quarter, and into the early part of next year as it begins to hit athletic footwear and athletic apparel, with some of the products coming in from brands and at higher costs.”

Amid the supply chain scuffle, Dick’s has faith in its assortment mix, which president and CEO Lauren Hobart said the company has elevated over time, especially compared to just two years ago. The sporting goods giant offers a mix of popular, high-end brands such as Patagonia and Yeti in its 857 stores, alongside the growing DSG and Calia brands, which helped private-label sales surpass $1.3 billion in sales in 2020. This total is more than half of the $2 billion goal the retailer set back in March 2019.

The private brands—which Dick’s now calls vertical brands—carry a margin rate of 600 to 800 basis points (6 to 8 percentage points) higher than average margin rates.

A brand like DSG filled a “white space” in Dick’s portfolio, Hobart said. “We had customers coming in for team sports and perhaps going to one of the department stores or mass merchants for things like athletic apparel because the price point was more affordable, and we did an extensive consumer research and realized that the Dick’s Sporting Goods brand had incredible credibility with consumers from a performance standpoint.”

DSG has since grown to Dick’s top-selling brand, but Hobart still sees significant potential, particularly since the product is doing well in not just apparel, but also team sports equipment.

“It really behooves us to push those brands,” Hobart said.

As far as building out its store fleet, Dick’s has been busy. In late August, the retailer opened its first Public Lands retail store near Pittsburgh, which carries outdoor and lifestyle apparel, footwear and equipment brands. It also opened its first two House of Sport experiential retail locations in Victor, N.Y., and Knoxville, Tenn.

Belitsky said the company expects to open a mix of stores later this year, including standard stores, House of Sport and Public Lands concepts, with “low-single-digit square-footage growth” going forward.

“The fleet is extremely profitable right now, so I don’t expect to see any significant store closings,” Belitsky said.

Hobart also shared insights into how the company has dealt with the ongoing labor shortages, particularly as the retail industry lost 15,325 jobs in August, according to the Department of Labor.

“We haven’t had nearly what I’ve heard across the industry, or other industries, about having to change hours,” Hobart said. “We have really focused though on the health and well-being and general salaries of our associates both hourly and full-time because we do need competitive wages. We have been increasing our wage rate over time. We did a large increase after we took ‘hero pay’ away. We sort of transferred it into early raises and more excessive raises than we would have done in the past. Just this past quarter, we did another raise across the board for our associates so wage rates are going up. We are competitive and we’re feeling pretty advantaged in terms of the labor market.”