Add Herman's to sporting goods chain auction - W.R. Grace and Co. to sell Herman's Sporting Goods Inc

Discount Store News, April 6, 1992 by Richard Halverson

CARTERET, N.J., - The British parent of Herman's officially has put the 259-store sporting goods chain on the block, hiring two investment bankers to help it find buyers.

Including the 266 sporting goods stores in three chains that Los Angles-based Pacific Enterprise wants to sell, 525 conventional sporting goods stores with combined annual sales of an estimated $1.2 billion have been put on the market this year.

Meanwhile, the '90s continues to develop into the decade of the category killer megastore, such as Atlanta-based SportsTown, operating units that run four to six times the size of an average Herman's.

Herman's changed hands in 1989 when Isosceles PLC acquired the chain in taking over its previous parent, Gateway, a British supermarket concern.

Isosceles immediately began shopping Herman's around but found no acceptable buyer. Isosceles then announced it would start modernizing Herman's stores - and close money-losers in the Southeast, including all five Atlanta units.

But Herman's sales continued to decline to an estimated $600 million in 1991 from $630 million in 1990 and $680 million in 1989. It lost money in the fiscal year ended last April and industry sources suspect it still is losing money as its current fiscal year draws to a close.

In a terse announcement last month, Isosceles disclosed that it had retained two investment banking concerns, S.G. Warburg, London, and Wasserstein Perella, New York, to find buyers.

Isosceles said it wants to divest Herman's in order to concentrate on its core business, supermarkets.

A major problem with Herman's is its store size, an average of 10,000 sq. ft. in a megastore era that typically requires a minimum of 40,000 sq. ft. to operate a dominant, full-line sporting goods store along the lines of SportsTown or Kmart's Sport Authority.

Founded in New York City in 1917, Herman's declined to join the move into megastores.

Pacific Enterprises, an oil and gas concern, also wants to return to its core business by selling the chains it acquired during an ill-fated diversification into retailing in the |80s.

In February, Pacific Enterprises put on the block five retail chains held by its Thrifty Corp. subsidiary, including its three sporting goods chains: Big 5, MC Sporting Goods and Gart Bros.

Although a handful of its sporting goods unit operating under the names of Casey's Sports Castles and Magees in the Midwest qualify in size as megastores, most of its 266 stores are too small to be considered category killers.

As a group, the Pacific Enterprises retail chains, which include the Thrifty drug store chain and the Bi-Mart discount store chain, are losing money. But Pacific declines to break out results of individual chains.

Estimated sales for Pacific's sporting goods stores totaled $600 million in 1990.

Herman's and other medium size stores find it difficult to compete with superstores on service price and selection, as well as small mall stores, such as Champ's, an athletic apparel chain of Woolworth, on convenience, said George Mrkonic, executive vice president for specialty retailing at Kmart. Few of Herman's stores are located in malls, he said, and most are in strip centers.

Mrkonic formerly was president and chief executive officer of Herman's, leaving in 1987.

"Both Herman's and Pacific Enterprises are in financial difficulty," Mrkonic said. "A lot of property is on the market. They will have a tough haul finding somebody to buy the business."

The expansion plans of Sports Authority, the category killer specialty chain that Kmart acquired in 1990, illustrates the megastore threat Herman's faces.

This month, Sports Authority will open in Wayne, N.J., the first of 10 to 12 superstores slated for the metro New York market, Herman's home territory. Sports Authority now operates 36 stores of 40,000-sq.-ft. and expects to be running 54 by year-end.

SportsTown plans to open 10 -12 more megastores over the nest 18 months, said chairman Tom Haas. SportsTown now operates 13 units ranging from 42,000 sq. ft. to 68,000 sq. ft. in three markets, Atlanta, Dallas and Houston.

Founded in 1987, SportsTown generated its first annual profit last year on sales of $88.1 million. To fund expansion, SportsTown filed last month to go public. In a registration with the SEC, the chain disclosed intentions to raise a net of about $18 million through the sale of 1.9 million shares, or 41.4% stake.

Another superstore chain on the march is Sport Unlimited, Tampa, Fla., owned by Investcorp, a Mideast holding company funded with Arab oil money. Sports Unlimited is building a 20th unit in Charleston, S.C. Stores sizes include 40,000 sq. ft., 45,000 sq. ft., 50,000 sq. ft. and even 85,000 sq. ft. (in Oklahoma City), said president Jim Bradke.

Privately owned Sportmart, Niles, Ill., is another chain that is opening nothing but 40,000-sq. -ft. stores. Sportmart now operates 25 units, 13 in Chicago and 12 in Southern California.

Even money-losing Oshman's, the only publicly owned, independent sporting goods chain, plans to open primarily superstores. The Houston-based retailer now operates two SuperSports USA units of about 80,000-sq.-ft. in Texas and plans two more this year.