SGB WEEKLY 1119

MAY 9, 2011

A Weekly Web Magazine for the Sporting Goods Industry

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VP & Group Publisher Bill Garrels bgarrels@sportsonesource.com 303.997.7302

A Weekly Web Magazine for the Sporting Goods Industry

Senior Business Editor Thomas J. Ryan (917.375.4699) tryan@sportsonesource.com Editor/Analyst Kyle J. Conrad (704.987.3450 x111) kconrad@sportsonesource.com Contributing Editor Charlie Lunan clunan@sportsonesource.com Creative Director Teresa Hartford Graphic Designer Camila Amortegui Advertising Sales Katie O’Donohue (704.987.3450 x110) katieo@sportsonesource.com Sean Hall (704.987.3450 x107) shall@sportsonesource.com Circulation & Subscriptions subs@sportsonesource.com

Attendees picking up sponsor giveaways which included socks from Drymax, hoodies from Holloway, reusable lunch bags from TAG and books from speakers Bernie Brennan, Wayne Elsey and Lori Schafer.

Technology Chief Information Officer, Mark Fine VP Research & Development, Gerry Axelrod Manager Database Operations, Cathy Badalamenti

NEWS SportsOneSource Publications SGB TEAM Business Sportsman’s Business The B.O.S.S. Report Sports Executive Weekly SGB Update Footwear Business Update PSR Update Sportsman’s Business Update Team Business Update SGB Weekly Team Business Weekly Sportsman’s Business Weekly Footwear Business Weekly Outdoor Business Weekly

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ADIDAS Ups Outlook On Strong Q1 Performance FINANCIAL BRIEFS JOHNSON OUTDOORS Fiscal Q2 Boosted by Marine Electronics Business PUMA Parent to Acquire Volcom in $607.5 Million Deal K-SWISS' Backlogs Rebound in First Quarter TIMBERLAND'S Profit Drops as Margins Shrink SPORTSONESOURCE Opens Boulder Office; Taps Bill Garrels to Lead Media Business

FEATURES

10 COLLABORATING IN THE DESERT The recent Annual NSGA Management Conference & Team Dealer Summit in Tucson, AZ was an opportunity for members of the sporting goods industry to meet with governing bodies and rule makers to discuss key issues impacting the team market today.

14 GENESCO Dives Into Team Channel

DEPARTMENTS

18 CALENDAR

Cover photo: (from left to right) Bob Echterling, VP Sales, American Sporting Goods; Beth Coblentz, EVP & GMM Soft Goods, Academy Sports + Outdoors; Joe Wood, President (retired), Famous Footwear

SportsOneSource, LLC 2151 Hawkins Street • Suite 200 • Charlotte • NC • 28203 t. 704-987-3450 • f. 704-987-3455 www.SportsOneSource.com

Copyright 2011 SportsOneSource, LLC. All rights reserved. The opinions expressed by writers & contributors to SGB WEEKLY are not necessarily those of the editors or publishers. SGB WEEKLY is not responsible for unsolicited manuscripts, photographs or artwork. Articles appearing in SGB WEEKLY may not be reproduced in whole or in part without the express permission of the publisher.

SGB WEEKLY is published weekly by SportsOneSource, LLC, 2151 Hawkins Street, Suite 200, Charlotte, NC 28203; 704.987.3450. Send address changes to SGB WEEKLY, 2151 HAWKINS STREET, SUITE 200, CHARLOTTE, NC 28203; 704.987.3450.

WEEK 1119 | SGBweekly.com

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NEWS

ADIDAS UPS OUTLOOK ON STRONG Q1 PERFORMANCE Adidas CEO, Herbert Hainer

Led by robust performances in North America, China and Russia, Adidas Group's momentum only accelerated in the first quarter with sales increasing at the highest organic growth rate since the second quarter of 2006. On a currency-neutral basis, sales climbed 18 percent as a result of double-digit sales increases in Wholesale, Retail and Other Businesses. ​Net income grew 24.5 percent as operating expense leverage and growth in the higher-margin retail segment helped offset rising sourcing costs and a hike in marketing expenses to cover the launch of its “All In” Adidas campaign. Citing strength in emerging markets, retail expansion as well as continued momentum at both the Adidas and Reebok brands, the company raised its outlook for the year. Adidas Group now expects full-year sales to increase at a high-single-digit rate on a currency-neutral basis. Previously, the Group projected mid- to high-single-digit sales growth. ​In reporting euro terms, Group revenues grew 22.4 percent to €3.27 billion ($4.47 bn) in the first quarter. ​Sales for the Adidas Group in North America grew 25.7 percent currency-neutral, driven by a 30 percent increase for Adidas and 22 percent for Reebok. In euro terms, revenues grew 28.4 percent to €751.6 million ($1.03 bn). ​"The performance of Adidas in America demonstrates the marriage of the strategies we are now executing to close, to get to our major competitor," said Company CEO Herbert Hainer on a conference call with analysts. "Running, Basketball and Originals, Adidas in the U.S. is on fire.” ​Breaking out the Adidas brand overall, sales in euros rose 22.1 percent to €2.44 billion ($3.33 bn). The 18 percent currencyneutral gain was boosted by 50 percent gain in Sport Performance, with all major categories showing double-digit growth. Adidas 6

SGB WEEKLY l MAY 9, 2011

Sport Style was up 27 percent in currency-neutral terms. Led by adiZero F50 Runner and ClimaCool Ride, the Running category was up over 30 percent in the quarter. ​Hainer said adiZero Rose and the Crazy 8 have provided some "much needed momentum" in Basketball footwear and "significant interest" is expected for its June launch of the adiZero Crazylight, touted as the lightest basketball shoe ever at 9.8 ounces. Outdoor was up 25 percent due to market share gains in key markets, as well as expansion in emerging markets while Training was also strong.

Football (Soccer) was flat despite going against the 2010 World Cup, driven by a 34 percent increase in footwear sales due to popularity of the adiZero F50 boot. ​​The Reebok brand's overall sales in euros were up 26.9 percent to €477 ($652 mm). In home-country U.S. dollar terms, total Reebok brand sales increased 20.4 percent for the quarter. The 24 percent currency-neutral growth follows a dramatic rebound that only started last year, when Reebok resumed growth with 1 percent currency-neutral growth in Q1 2010. The 22 percent gain for Reebok in North America was actually exceeded by growth of more than 25 percent in Western Europe, European Emerging Markets, and Other Asian Markets. ​Toning continued to be a growth-​driver globally due to international expansion. In North America, Hainer noted that "the good news for Reebok is that sales of our toning collections continues to be very good, and we are liquidating product faster than our main competitor in stores where we are competing." ZigTech drove North American growth and demand remains "extremely strong." ​Revenues in the Group’s Other Businesses segment were up 14.3 percent currency-neutral, driven by a 20.5 percent sales increase at TaylorMade-adidas Golf. In euro terms, Other Businesses revenue jumped 19.1 percent to €376 million ($514 mm).

FINANCIAL BRIEFS Easton-Bell Sports, Inc. reported net sales rose 4.8 percent to $203.4 million in the first quarter ended April 2 on the strength of 16 percent growth in its Action Sports brands, which include the cycling brands Easton, Bell, Giro and Blackburn. Team Sales at the Riddell unit dipped 2.6 percent; however, and gross margin slipped 200 points to 31.4 percent due to escalating fuel costs, shifting sales mix and sales growth in youth football helmets. The company recorded a slight net loss of $62,000 as compared to a small net income of $122,000 in the year-ago period.

Fortune Brands, Inc. reported that first quarter comparable revenues in the company’s Acushnet Golf segment, which excludes foreign currency exchange rates, the impact of the sale of Cobra Golf and restructuring and other charges, grew 17 percent. Operating income grew more than 30 percent. Bruce Carbonari, chairman and CEO of Fortune Brands, said “[Acushnet] sales achieved a first quarter record as successful new products drove strong growth in each product category. Sales for the Titleist brand were sharply higher on very strong initial demand for the new Pro V1 golf balls and 910 metals, while sales of the new DryJoys Tour golf shoes, as well as gloves and performance outerwear, drove robust growth for FootJoy.”

Big 5 Sporting Goods Corp. reported revenues inched up 1.2 percent in the first quarter, to $221.1 million. Same store sales decreased 0.9 percent. Net income fell 44.0 percent to $2.8 million, or 13 cents per share.

The results missed plan and the sporting goods chain forecast a weak second quarter with comps expected to be flat to slightly down. ​Said Steven Miller, Big 5 chairman, president and CEO," Steven G. Miller, "We believe many of our consumers reduced purchases of discretionary items in response to the challenging economic environment, characterized by rising gas prices and high unemployment. We are now taking what I would call more aggressive steps to enhance merchandise pricing and promotions."

Chairman and CEO, Helen Johnson-Leipold

JOHNSON OUTDOORS FISCAL Q2 BOOSTED BY MARINE ELECTRONICS BUSINESS Johnson Outdoors, Inc. reported record sales and earnings in the second quarter ended April 1 as dealers loaded up on their trolling motors, fish finders and other marine electronics.

Net sales grew 14.1 percent to $128.9 million, compared to $112.9 million in the prior-year quarter, while net income jumped 37.2 percent to $8.5 million, or 87 cents per diluted share, compared to $6.2 million, or 64 cents per diluted share, in the year-ago quarter.

"The growing trend toward an active outdoor lifestyle and improving economic conditions are boosting continued recovery for the outdoor recreational products industry,” said company Chairman and CEO Helen Johnson-Leipold. “While the level and pace of recovery varies by category, overall our unparalleled portfolio of consumer-preferred brands gained share to outperform their markets and competition.”

Johnson-Leipold said the company is on track to deliver 5 percent compound annual growth in sales, and 6 percent operating margin by the end of fiscal 2012.

Johnson Outdoors was able to boost gross profit margin by 90 basis points versus the yearago quarter to 41.1 percent of sales by cutting overhead and growing sales to offset rising commodity costs.

The bulk of the sales growth came from the Marine Electronics unit, where revenue rose 27.1 percent to $78.9 million due to strong demand for new products from Minn Kota, Hummingbird and Cannon across all markets and channels. OEM sales rose 67 percent, indicating a steep recovery in orders for new boats of less than 25 feet.

Watercraft sales climbed 11.8 percent to $18.1 million as a result of growth in national and regional sporting goods channels, where inventories of Watercraft product are 10 percent higher than a year ago. The segment's​brands include Old Town Canoe & Kayak, Ocean Kayak, Necky Kayaks, Carlisle and Extrasport PFDs. Diving revenues rose 2.7 percent to $21.9 million, thanks to 12 percent sales growth in the U.S. and favorable exchange rates.

Outdoor Equipment sales declined 25.2 percent to $10.3 million due largely to budget gridlock in Washington D.C., which has delayed military orders. A 20 percent decline in military sales more than offset an uptick in commercial sales of Eureka! tents in the U.S. Sales of consumer camping gear were essentially flat, but management said their dealers are carrying 16 percent more inventory than last spring thanks in part to the popularity of Eureka! chairs and tables.

WEEK 1119 | SGBweekly.com 7

NEWS

Puma CEO, Jochen Zeitz

PUMA PARENT TO ACQUIRE VOLCOM IN $607.5 MILLION DEAL PPR SA, the French-parent of Puma as well as luxury brands such as Gucci and Yves Saint Laurent, agreed to buy surf-inspired apparel maker Volcom, Inc. for $607.5 million. Volcom will be the first brand outside Puma in PRR's new Sport and Lifestyle Group, which is being headed by Puma CEO, Jochen Zeitz.

PPR made a tender offer to acquire all outstanding Volcom shares for $24.50 a share, a 37 percent premium over Volcom's three-month average trading price. Richard Woolcott, Volcom's chairman & CEO, founder and his team will be joining PPR. The deal is the latest step in PPR's strategy to shrink its retail arm and add more sports brands to complement its strong luxury business, which includes Gucci, Yves Saint Laurent, Bottega Veneta, Balenciaga, Sergio Rossi, Alexander McQueen and Stella McCartney.

"Volcom is one of, if not, the leading global action sports brands​, with a 20-year heritage in action sports," said FrancoisHenri Pinault, PPR's chairman and CEO, on a conference call. He also noted that Volcom, which had sales of $323 million in 2010, delivered a 12 percent compound average growth rate in sales over the past five years.

Added Woolcott, "PPR, with its expertise gained through both Puma and its Luxury Group, could bring international market knowledge, sourcing capabilities and other operational expertise in areas such as product development and retailing to help the company grow Volcom globally while preserving the elements that make the brands authentic."

K-SWISS' BACKLOGS REBOUND IN FIRST QUARTER While K-Swiss, Inc. remained in the red in the first quarter due to heavy marketing investments, the brand’s top-line growth, driven by its Tubes collection, are offering some hope for a recovery. Most encouraging, future orders at quarterend were up 45.0 percent.

Domestic futures were up 62.0 percent to $47.2 million while international futures increased 33.6 percent to $58.0 million.

On a conference call with analysts, Steven Nichols, chairman, CEO and president, cautioned that while improved backlogs and quarterly growth were a "welcome relief," the real test will be bookings for the second half of this year for 2012 selling. "Until then, we'll keep feeding the marketing machine and extending our leadership and innovation," said Nichols. "We have much work to do to sustain this momentum."

Sales in the first quarter ended March 31 rose 10.2 percent to $72.6 million, marking the first time K-Swiss delivered two consecutive quarters of top-line increases in more than four years. Domestic revenues increased 31.4 percent to $31.5 million; International revenues decreased 1.8 percent to $41.2 million. At-once business for the quarter was 27.9 percent of sales versus 26.0 percent in Q1 last year.

Revenues in the K-Swiss Performance segment - tennis, running, and training footwear – jumped 69 percent and represented 43 percent of sales in the first quarter.

Lifestyle revenues were down 30 percent and accounted for 33 percent of revenues. Top sellers were the Classic, 184,000 pair; Court Comfort, 53,000 pair; and RV1.5, 50,000 pair. The Other segment – including apparel, Form Athletics and Paladium – was up 23 percent and represented 24 percent of sales.

The net loss swelled ​to $9.8 million, or 28 cents per share in Q1 from a loss of $4.7 million, or 13 cents, in the prior-year period due to marketing and launch costs. SG&A increased to 56.2 percent of sales versus 53.6 percent in Q1 last year and grew $5.5 million in dollars. Gross margins were reduced to 39.3 percent of sales from 43.5 percent due to increased inventory and royalty reserves and greater discounts given to customers due to production delays from factories.

SPORTSONESOURCE OPENS BOULDER OFFICE; TAPS BILL GARRELS TO LEAD MEDIA BUSINESS

Timberland's new store in San Francisco opened in April

TIMBERLAND'S Q1 NET INCOME FALLS AS MARGINS SHRINK The Timberland Company, Inc. reported another solid quarter of top-line growth but first-quarter profits fell well short of Wall Street's estimates due to higher product input costs. TBL shares fell 27.7 percent last week to close at $32.67 on Friday.

Net income declined 30.2 percent to $18.0 million, or 35 cents per share, due in part to a plan to delay meaningful price increases until the back half of 2011 as well as increased marketing investments.

Analysts' consensus estimate had been 59 cents a share. The company does not provide EPS guidance.

Revenue increased 10.1 percent to $349.0 million in the first quarter - up 8.5 percent on a constant-dollar basis. The gains reflect growth in every region, in retail and in wholesale, and in each product category, management said on a conference call with analysts.

North America revenue increased 8.3 percent to $132.0 million, driven by growth across all brands, channels, and genders, including doubledigit growth in men's footwear. The 10 percent comp gain – its third consecutive quarter of retail comp growth – was the highest retail comp growth Timberland had experienced in North America since before 2004.

On the call, Jeff Swartz, Timberland's president and CEO, said the North America region's results "show that the brand momentum generated in our home market over the last six months is genuine." In North America wholesale, first-quality revenue was up 13 percent. In TBL specialty stores, revenue grew 10 percent with comps up 27 percent in the quarter. E-commerce in the region jumped 43 percent.

The profit decline reflects a 300 basis points decline in gross margins to 47.0 percent of sales because of higher leather, ​labor and transportation costs. Company CFO Carrie Teffner said on the call that price increases and mix will mitigate these cost pressures in the back half of the year. Operating expenses as a percent of revenue increased 140 basis points to 38.8 percent due to targeted investments to grow retail, to support spring/summer advertising in select markets, and to fund its ERP implementation.

In an effort to expand its footprint in the outdoor, snow sports and action sports markets, The SportsOneSource Group announced the opening of a new office in Boulder, CO. The office will serve as the hub for all business development, marketing and Bill Garrels, client services related to the SOS VP and group publisher, The SportsOneSource Group Research specialty business and will be the headquarters for sales and marketing related to the SOS Media business.

The company will maintain its headquarters in Charlotte, NC as well as its data center and database management and technology teams in the company’s Florida office.

The company also tapped Bill Garrels as VP and group publisher, responsible for all sales and marketing for the company’s print media, digital media, online media and events businesses. Garrels joins Paul Gagner, VP and general manager of the SOS Research specialty business, in the new Boulder office. The​ two seasoned industry executives will work together to build a team to service the company’s growing specialty research and trade media businesses.

“The addition of Bill Garrels and the opening of the Boulder office is evidence of The SportsOneSource Group’s commitment to growth in these two very important segments of our business,” said President and CEO James Hartford. “The SOS Research specialty business and the SOS Media business are positioned for new growth and it is critical for us to have solid management in place to direct and nurture that growth.”

Garrels, a 20+ year veteran of the publishing business, comes to The SportsOneSource Group from Active Interest Media, where, as group publisher, he managed multiple consumer titles across multiple channels in the company’s Western Equine Group. Prior to AIM, Garrels managed the western U.S. for VNU Business Media, representing the magazine properties now owned and produced by The SportsOneSource Group. Prior to VNU, Garrels was VP sales and marketing at Inside Communications, managing sales for VeloNews, Inside Triathlon, Ski Racing, VeloSwap and ancillary events. His early magazine experience includes Ski, Skiing, Transworld, Golf Pro magazine, Outside magazine and City Sports magazine.

Garrels joins Gagner and Bill Bratton, VP business development for the Western U.S. and financial accounts, and Barry Gauthier, VP business development for the East and Midwest, as senior management of the company’s business development efforts.

WEEK 1119 | SGBweekly.com 9

Jim Baugh (second from left), former president, Wilson Sporting Goods, celebrates his induction into the Sporting Goods Hall of Fame with Po-Jen Cheng (formerly Wilson), Cristy Van Den Berg, Frank Garrett (formerly Wilson), and Tom Cove, president & CEO, SGMA.

COLLABORATING IN THE DESERT The recent Annual NSGA Management Conference & Team Dealer Summit in Tucson, AZ was an opportunity for members of the sporting goods industry to meet with governing bodies and rule makers to discuss key issues impacting the team market today.

By Kyle J. Conrad

As hundreds of brand representatives, team dealers and media members of the sporting goods world convened in Tucson, AZ at the Loews Ventana Canyon for the 47th Annual NSGA Management Conference and Team Dealer Summit last week, it represented an opportunity for the industry’s sharpest minds to shake out resolution plans to resolve a few key challenges facing the market.

The Summit was also a chance for attendees to network and forge business partnerships while serving as a “meeting of the minds” between executive members of various rule-making committees and senior members of the NSGA and SGMA through numerous educational sessions, seminars, networking events and speaking arrangements.

Among the most polarizing session at the Summit was “How Rule Changes Can Impact the Team Business,” a panel that included Jim Fallis, NCAA Oversight Panel and Athletic Director, Northern 10

SGB WEEKLY l MAY 9, 2011

Arizona University; Marty Hickman, Executive Director, Illinois High School Association; Jim Tenopir, Chief Operating Officer, NFHS; and Tom Cove, President and CEO, SGMA. James Hartford, President & CEO of The SportsOneSource Group, served as moderator.

Among those in attendance for the session, most were team dealers who felt the sting of a “pop” NFHS ruling last year initially banning the use of composite bats at the high school and college levels. After Fallis started the session off by summarizing the rulemaking process at the NCAA level, Tenopir took the stand to debrief the audience on the rulemaking process for the NFHS, including a stipulation that a rule may be handed down immediately if it relates to the well-being of young athletes - as was the case of the bat ruling issued last summer. The bat sanction, which has since been “loosened” at the high school level to allow for certain exceptions pending a review, left thousands of frustrated dealers

(From left to right) Jim Tenopir, COO National Federation of State High School Associations; Tom Cove, president & CEO, SGMA; Jim Fallis, member NCAA Oversight Panel and Athletic Director of Northern Arizona University; Marty Hickman, Executive Director, Illinois High School Association

with essentially-useless inventory on hand. Of course, that ruling was just one of the topics discussed during the session, but with numerous questions posed from the audience, it was clearly one of most interesting. While all parties present agreed communication lines between the industry and the rulemakers could be improved, members from the governing bodies emphasized safety-issues (like the one regarding bat specifications) must be acted on immediately to protect the well-being of amateur players - a notion that was not disputed by any parties present at the session. Tenopir admitted that he understood the “angst” and “heartburn” by team dealers, but maintained that from a legal perspective, “it was not logical for (the NFHS) to hold off” on the ruling.

Marty Hickman followed Tenopir, emphasizing that the most practical procedural change in the rulemaking process would be to include team dealers before the process takes place and to enhance the relationship between the rule makers and dealers so “everyone knows what’s in the pipeline.” Hickman conceded that he understood state associations can’t compromise on safety issues, but noted that rules pertaining to uniforms should be simplified to maximize the product’s life cycle and cut down on obsolete inventory.

As the penultimate panelist, SGMA President & CEO Tom Cove took the podium, noting that one of the key issues for dealers and

brands is for rule makers to take into account the economic impact of rulings that don’t pertain to safety. He pointed to the impact of media coverage, including the recent case of a young California baseball player who was struck in the head with a batted ball, and how extensive coverage can drastically change the public’s perception of an issue. Cove also pointed out that as injuryprevention technology evolves, a unique opportunity has presented itself for dealers and brands to sell higher-margin products, such as tamper-evident bats and football helmets designed to reduce the chance of concussions. A continually improving relationship between the industry and the rule makers, he added, could help both parties achieve their goals.

Among other noteworthy events, Jim Gabel, President, Reebok North America, conducted a compelling session titled “Building Your Brand,” which chronicled Reebok’s successes and challenges as it launched a massive re-branding effort, transitioning itself from tired and unhip to cutting edge and trendy, earning the “2010 Marketer of the Year” award from Footwear News. Gable discussed how Reebok management cut 25 percent of its North American staff in January of 2009 to “reset the organization” and create a better talent pool while improving the transparency of the company’s finances and business operations. After doubling its research and development input in 2008, Gable said the brand focused on WEEK 1119 | SGBweekly.com

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Opening Keynote Speaker, Jeremy Gutsche, Founder of TrendHunter.com

simply designing a product that felt good and looked good while pricing it at market value. He emphasized the importance of enhancing the respect of a brand by reducing its channels of distribution and effectively managing the flow of products, among other initiatives.

Other notable sessions were “Using Technology to Increase Profits,” which focused on utilizing emerging technology to manage inventory and business operations. The panelists, Kent McKeaigg, President & CEO of Teamtraderonline. com, and Ryan Wenkus, a sales rep for Metro Athletic Supply, discussed how dealers could add profits and value to their operation by leveraging relationships with their clientele through various forms of emerging technology. Applications and tools like tmblr.com, blogs, file sharing devices like box.net and certain task management applications can help dealers find new clients and retain existing accounts. The panelists also discussed the benefits of utilizing social media Twitter, Facebook, Gowalla, Foursquare - to promote value, knowledge, and 12

SGB WEEKLY l MAY 9, 2011

Bernie Brennan, former chairman of the National Retail Federation and conference speaker with Rusty Saunders, Saunders & Associates

Matt Carlson, president & CEO, NSGA

“The 2011 Management Conference & Team Dealer Summit was a great success on a number of levels. Our attendance numbers were 10 percent higher this year than in 2010, which in this time of continued economic recovery is a statement about the quality of our event’s programming. In addition, our attendees were engaged and excited about the educational content and networking opportunities, while our speakers brought tremendous energy and valuable knowledge to their sessions. We have heard a great deal of positives coming out of the event, and are extremely excited about the way it turned out.” MATT CARLSON

establish relationships through inexpensive means. They also discussed the growing number of dealers using Apple’s iPad to display catalogs to potential buyers and close orders more rapidly.

For many attendees, Monday’s luncheon with ESPN Correspondent Erin Andrews was one of the highlights of the Summit - for various reasons. Andrews gave an engaging and entertaining chronicle of her road to becoming one of the faces of the world’s most watched sports network, including fielding questions about her experiences with various athletes, her most memorable moments in broadcasting, her participation in ABC’s Dancing with the Stars,” and the highly-publicized stalking case that left her “in a coma.”

Next year’s NSGA Management Conference and Team Dealer Summt will be held May 6-9 at The Westin La Cantera Resort in San Antonio, TX. ■

Celebrity luncheon speaker, ESPN Correspondent, Erin Andrews

Michael Copeland, Executive VP and COO, Cabela's

On the golf course with Todd Lamb, Under Armour; Mike Tindell, Sports Spectrum; Patrick Kratch, Required Team Gear; and Curtis Leeper, MJ Soffe

GENESCO

DIVES TEAM INTO

CHANNEL

Through Its New Sports Division, Genesco Makes A Major Move To Become Market Leader In The Team Sports Business

By Thomas J. Ryan

G

enesco, Inc. has made the bulk of its money over the last two decades selling trendy fashions to teenagers and college kids through its Journeys and Lids chains. So what is it doing in the team business?

"It's just pretty much our customer," states President Ken Kocher, Lids Sports, the Genesco division that operates the Lids Team Sports team dealer business. He said Lids likewise targets the 12-to-24 year old male, most inspired by sports.

"We're a retailer obviously but really we're a sports company," Kocher said of Lids. "As we began looking at different ways to service our teenage sports customer, team sports became a natural fit. We think we know that customer and we at least know that customer knows us. By getting some commonality with that customer, we thought that would be a great way to reach out to them in another way."

The bigger reason Lids first began exploring entering the team dealer business about three years ago was because of the opportunity to consolidate the channel.

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SGB WEEKLY lMAY 9, 2011

"We're an aggressive company and team sports is a hugely fragmented business," said Kocher. "There is no nationwide player.

There are some 5,000 team dealers out there and most are one or two person shops. We're thinking that's a roll up strategy for us."

Lids Team Sports has quickly established a firm foothold in the channel with the acquisition of three of the top four team dealers in the U.S.: Impact Sports, Deforest, WI, in March 2009; Brand Innovators, Tigard, OR, in May 2010, and Anaconda Sports, Lake Katrine, NY, in August 2010. It also acquired a smaller dealer, Great Plains Sports in St. Paul, MN, in September 2009. With the round of buys, Lids Team Sports now has 116 reps covering 43 states.

Lids estimates that its annual sales run rate for the Team Sports business is now around $100 million, making it the number two team dealer in the U.S. behind Sports Supply Group. But it quickly plans to become the market leader.

"We want to build the company to a scale where we're able to continue to grow profitably," said Kocher. "But it's a very complicated

business. I don't think it's been replicated by any national company because it's very, very relationship driven and the whole process of decorating apparel to meet the turnaround demands of coaches and athletic directors is highly complex. So that is what is keeping a lot of players out of the business."

What gives Lids management confidence that it can consolidate the team channel is its experience consolidating the fan headwear channel with its Lids headwear chain.

Glenn Campbell and Scott Molander founded Hat World, the precursor to Lids, in the early 1990s with an idea of selling $20 baseball-style caps of licensed college and professional teams in malls. Buying larger competitor Lids Corp. in 2001 brought its store count to 400. Several acquisitions later (Hat Zone, Cap Factory, Cap Connection, Head Quarters and Hat Shack) as well as organic store growth openings has brought Lids to 985 stores at the close of 2010. It has been owned by Genesco,Inc., best known on the retail side for its Journeys fashion footwear chain, since 2004.

"We know how to grow a business," said Kocher. "The original founders are still with our company and really most of our senior management has been with us since the tenth store."

Indeed, Campbell is Vice President of Strategic Initiatives while Molander serves as Senior Vice President of Real Estate. Robert Dennis, Chairman, President and CEO of Genesco, Inc., has been

with Lids since 2001. Kocher joined Lids in 1997 as chief financial officer and has been president since 2005.

Overseeing Lids Team Sports is Clyde Roenbeck, who joined Lids in 2002 after a long career at Foot Locker. He became VP of field operations for Lids in 2006 and took over Lids Team Sports last April.

"He's been very instrumental in the Lids business in helping it grow from a very small company to a very large company," said Kocher. "He understands how to roll out businesses."

Moving well beyond headwear, Lids is also looking to consolidate the overall sports licensed space with its newer Lids Locker Room concept, another larger, mall-based concept selling caps, jerseys, T-shirts, sweatshirts as well as chotchkies such as team-logoed license plates or coffee cups. With 85 stores currently through the acquisitions of Sports Fan-Attic and Sports Avenue, Lids officials have said they see room for at least 500 stores nationally.

Moreover, Lids sees a sizeable revenue opportunity in becoming a one-stop shopping alternative for athletes and fans through crosschannel shopping across all its properties. For instance, a quarterback for the team will eventually be able to buy his uniform online through Lids Team Sports while finding incentives to purchase fan gear for his family and others through loyalty points at the Lids headwear stores and Lids Locker Room websites or physical stores. All three business will be combined at Lids.com.

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President Ken Kocher, Lids Sports

"We're not there yet but we're going to be able to cross channel to retail and give all these customers opportunities to get discounts across our chains," said Kocher.

Lids also expects to capitalize by modernizing the process of selling gear to schools. Kocher sees the technology expertise Lids has gained from its retail operations, including logistics and e-commerce, as a competitive advantage in addressing the team channel. He believes technology will be required to roll-up the industry for any national player.

"It's not so complicated if you want to stay small," said Kocher. "But it's complicated to roll it out as a national chain primarily because of the personalization touch and the relationships required to meet the complexities of on-time deliveries and accuracy. I think the only way you can take this thing nationwide is to have technology so you can make it seamless."

For instance, laptops and wireless connectivity will provide a rep in California the same view of inventory and art on a shared website as a rep in Florida. "Hopefully that will make their job easier over time but that's not the standard out there," said Kocher.

Lids also expects to gain cost efficiencies as it leverages functions across its infrastructure to lead to "very, very competitive pricing" for schools.

But Kocher admits that much of Lids’ success in team sports will depend on aligning with experienced people in the team market.

"It's just finding good people and good companies to associates ourselves with that have good reputations and hopefully giving them the ability to join us,” said Kocher.

Indeed, Kocher has kept the management and the roadman at the dealers it has so far acquired and being able to retain that team expertise and their contacts will be integral in reaching future deals.

"The last thing we would want to do is to get rid of people just to get rid of them," said Kocher. "We want people with a lot of knowledge."

Lids is also open to acquiring team dealer retail stores that a dealer may have, also seeing it as growth opportunity. It currently operates

one, Steichen's Sporting Goods in St. Paul, MN attained through the Great Plains Sports acquisition.

"Retail doesn’t scare us," said Kocher. "As long as it's profitable or has a good reason to have a retail store, we're not worried about it at all."

One different tactic for Lids Locker Room is its focus on almost exclusively Nike product. For equipment items Nike doesn't sell, it will use another brand in those categories. Also, Lids Team Sports will sell some of its own branded t-shirts and sweatshirts for some more costconscious consumers. Kocher said that still makes up a "small part" of the business.

"It's really Nike," said Kocher. "If we do a cheer team, a soccer team, a volleyball team, anything; we're putting Nike on them."

While the Nike Swoosh is on most of America's top college teams, it only has a single-digit share in the overall team channel, Genesco officials have said to investors. Kocher said that while Lids feels fortunate to partner with "one of the largest and most successful brands in the world," he also believes selling multiple brands complicates the selling proposition in the dealer channel.

"We don’t want to have 85 things coming out of our bags to sell to the coach," said Kocher. "We want to be very focused on what we sell to the coach. I think that when you do that with one or two brands, it's a simpler story. Nike is the number one brand out there when it comes to sporting goods. So we feel we really have a good story."

Although he agreed that some coaches may want to see more selection, he added, "I think the pros way outweigh the cons when you have Nike in your bag."

Kocher noted that one challenge to consolidating the channel is the extremely-fragmented market. For instance, the next potentially largest acquisition Lids could acquire is about half the size of its recent Anaconda Sports acquisition. But he said Lids will remain opportunistic in exploring opportunities in the years to come.

"One thing we're going to do and we're not shy about it is we're going to grow this thing into a very large business," said Kocher. "So whoever wants to be a partner with us, come on aboard." ■

"I can't imagine having achieved the expanded retail space & growth of our business without regularly attending OR." – Marc Sherman, Outdoor Gear Exchange and GearX.com

201 1

2012

AUGUST 4-7, 2011 Salt Palace Convention Center Salt Lake City, UT

JANUARY 19-22, 2012 Salt Palace Convention Center Salt Lake City, UT

Open Air Demo AUGUST 3, 2011 Jordanelle State Park, UT

All Mountain Demo JANUARY 18, 2012 Wasatch Range, UT

VISIT OUTDOORRETAILER.COM OR CALL 949/226-5722 FOR MORE INFORMATION.

CALENDAR

For full year calendar go to sportsonesource.com/events

Athletic Dealers of America 1395 Highland Avenue Melbourne, FL 32935 t 321.254.0091 f 321.242.7419 athleticdealersofamerica.com

14-16

Licensing International Expo Las Vegas, NV

24-26

SGB 40 Under 40 Awards Chicago, IL

27-29

EORA Southeast Summer Early Bird Show Greenville, SC

27-29

EORA Northeast Summer Early Bird Show Manchester, NH

29-30

TAG Spring / Summer Show St. Louis, MO

JULY 6-8

EORA Mid-Atlantic Summer Show Parsippany, NJ

6-8

NBS Summer Market Grapevine, TX

6-9

EORA Mid-Atlantic Summer Show Parsippany, NJ

8-10

ADA Spring Buying Show Atlanta, GA

13-15

ASA-ICAST International Sport Fishing Expo Las Vegas, NV

13-15

BCA International Billiard and Home Recreation Expo Las Vegas, NV

14-17

19-21

21-24

European Outdoor Trade Fair Friedrichshafen, Germany ASI Chicago Chicago, IL Bike Expo 2011 Munich, Germany

AUGUST

3

4-7

Outdoor Retailer Open Air Demo Salt Lake City, UT Outdoor Retailer Summer Market Salt Lake City, UT

TRADE ASSOCIATIONS | BUYING GROUPS

JUNE

National Sporting Goods Association 1601 Feehanville Dr. / Suite 300 Mount Prospect, IL 60056 t 847.296.6742 f 847.391.9827 nsga.org Nation’s Best Sports 4216 Hahn Blvd.

Ft. Worth, TX 76117 t 817.788.0034 f 817.788.8542 nationsbestsports.com Outdoor Industry Association 4909 Pearl East Circle / Suite 200 Boulder, CO 80301 t 303.444.3353 f 303.444.3284 outdoorindustry.org SGMA 8505 Fenton Street Silver Spring, MD 20910 t 301.495.6321 f 301.495.6322 sgma.com SnowSports Industries of America 8377-B Greensboro Drive McLean, VA 22102 t 703.556.9020 f 703.821.8276 snowsports.org Sports, Inc. 333 2nd Avenue North Lewistown, MT 59457 t 406.538.3496 f 406.538.2801 sportsinc.com Sports Specialists, Ltd. 590 Fishers Station Dr. / Suite 110 Victor, NY 14564 t 585.742.1010 f 585.742.2645 sportsspecialistsltd.com Team Athletic Goods 629 Cepi Drive Chesterfield, MO 63005 t 636.530.3710 f 636.530.3711 tag1.com World Wide Distributors 8211 South 194th Kent, WA 98032 t 253.872.8746 f 253.872.7603 wdi-wdi.com

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