Top sporting goods chains restructure, change hands - Discount Store News Annual Discount Industry Report; Part 1: Chain Analysis - Industry Overview

Discount Store News, July 5, 1993

A massive restructuring of sporting goods retailing took place last year, with four mega-store chains going public to finance their growth and two of the largest operators of conventional-sized stores changing hands.

To finance their expansion, SportsTown, Atlanta; Sports & Recreation, Tampa, Fla.; Sportmart, Niles, Ill.; and Sports Chalet, La Canada, Calif., all sold minority interests to the public in 1992, putting further pressure on conventional stores.

In addition, Kmart is talking again about taking its Sports Authority chain public. That would be a move to bolster Kmart's own stock price. Given the deep pockets of its parent, Sports Authority hardly lacks for expansion capital.

Sports Authority already operates 61 units and expects to end the year with 81. Opening 25 stores a year, Sports Authority expects to break the billion dollar sales mark in 1995. With the retrenchment of Herman's--and the breakup of the Thrifty Corp. sporting goods operation--Sports Authority already is the nation's largest specialty chain.

In major regroupings, the owners of Herman's and the Big 5, Gart Bros. and MC Sporting Goods chains sold them at fire sale prices.

An investor group called Taggart/Fasola, New Brunswick, N.J., paid $40 million in cash, plus assumption of $225 million in debt, for the 253 Herman's stores. Within days, the new owners filed Chapter 11 bankruptcy, closed 132 stores and retrenched to its Boston to Washington core market.

The British owners of Herman's Isoseles PLC, had been attempting to sell Herman's since 1989, when it acquired Herman's previous British owner. The price for Herman's represents a markdown from about $500 million paid for it in a 1980's LBO, including the Sunset Sporting Goods acquisition.

Taking a $1 billion bath on an ill-fated diversification into retailing, Pacific Enterprises sold its Thrifty Corp to Leonard Green & Partners (LGP), a Los Angeles investment group, last fall for $275 million in cash and tax benefits.

The purchase included the 264 sporting goods stores in the Big 5, Gart Bros. and MC Sporting Goods chains, as well as about 620 Thrifty Drug Stores and 43 unit of the BiMart discount store chain.

The parties never disclosed how much of the price the sporting goods stores represented, but the stores must have gone for a bargain price.

Pacific Enterprises, a California gas utility, had invested more than $1.2 billion in its short-lived retailing empire.

Far from slashing the sporting goods operations, LGP has just agreed to acquire 20 of the Herman's stores that the new owners closed in Arizona, Illinois, Idaho, Utah and Washington. LGP paid $360,000 for the 20 leases and agreed to assume Herman's liabilities under those leases.

Herman's also put the remaining closed stores up for auction, but the results were unavailable at press time.

LGP's Thrifty Corp remains the legal owner of Gart Bros. and MC Sporting Goods, while a separate group of investors that LPG leads owns Big 5.

Herman's and the Thrifty group, although losing money, both topped the chart as the largest sporting goods specialty retailers last year, accounting together for more than $1 billion in sales.

Oshman's Sporting Goods continues to struggle, losing a net of $2.4 million more in the first quarter of 1993, even though it had narrowed its net loss in 1992 to $200,000.

Sporting goods sales declined 4.2% last year, the National Sporting Goods Association estimated. But the retailer association predicts sales will increase 5% in '93.

Oshman's has settled on SuperSports USA megastores as its growth vehicle and plans to open 39 more over the next five years, including three in 1993. It will close 21 conventional stores, including five in '93.

Oshman's opened three superstores in 1992, including the SuperSports unit in the gigantic Mall of America, Minneapolis. Covering 88,000 sq. ft., the store offers numerous sports tryout areas, such as basketball courts, a boxing ring, a baseball batting cage, and a golf driving cage, as well as a putting green.

In its expansion strategy, Sports & Recreation seeks out secondary markets, such as Harrisburg, Pa., while Sports Authority looks for major metro markets, such as New York.

In contrast, SportsTown and Sportmart are concentrating on regional markets. SportsTown operates primarily in Georgia and Texas, while Sportmart operates mostly in Illinois and California.