Sports Authority Is Throwing In The Towel And Closing All Of Its Stores

 

(Kevin Smith)  When struggling retailer Sports Authority filed for Chapter 11 bankruptcy last month in the face of more than $1 billion in debt, the company indicated that it had two options going forward.

One of those was to shed underperforming stores and emerge from bankruptcy as an intact, but pared-down company. The other was to sell everything and cease operating.

On Tuesday, the company appeared to choose the latter.

In a hearing in U.S. Bankruptcy Court in Wilmington, Delaware, an attorney for the Englewood, Colorado-based sporting goods chain indicated that the only option for the company was to close all of its stores.

“It has become apparent that the debtors will not reorganize under a plan but instead will pursue a sale,” said the attorney, Robert Klyman.

The abrupt abandonment of a reorganization plan follows Sports Authority’s announcement in March that it would close 140 of its 464 stores in the U.S. and Puerto Rico to help pay off $1.1 billion in debt.

Phil Lempert, a Santa Monica-based analyst of consumer behavior and marketing trends, figures consumers haven’t seen the last of major retailers shuttering. Just last week, Sport Chalet announced the closure of all 47 of its stores in California, Nevada and Arizona. That chain is based in La Cañada Flintridge.

“With the minimum wage going up to $15 an hour and more people turning to online shopping, more stores are going to close,” Lempert said. “It’s fine to say that everyone should have a living wage. But the money has to come from somewhere.”

Lempert said a growing number of retail outlets have fallen victim to “showrooming,” where customers will walk into a store, try on the shirt or jacket they like and then order it online at a significant discount.

“These stores have to look at not at how they will compete with other brick-and-mortar stores, but how they will compete with Amazon,” he said. “It’s become a holistic environment where people can buy things on their mobile phones and then have the products delivered by the time they get home.”

Matt Carlson, president and CEO of the National Sporting Goods Association, said Internet sales have fueled increased competition for brick-and-mortar retailers. And online retailers have a big advantage. Their overhead costs are far less and their customers often don’t have to pay sales tax on their purchases.

Figures from the National Sporting Goods Association reveal that in 2009, 10 percent of all sporting goods purchases were made online. The following year that jumped to 12 percent and in 2014 it hit 15 percent.

One equity analyst who could not provide his name as it would violate his company’s policy, said Sports Authority’s store closures will be a “huge” hit for the industry.

“There are a lot of suppliers that will left hanging,” he said. “When you have 464 doors closing, there’s no where else to go to make up for that loss of sales volume.”

Industry experts say Pittburgh-based Dick’s Sporting Goods, which operates 645 locations, including 42 in California, will likely snag some of that business.

But REI, Big 5 Sporting Goods and Bass Pro Shops will also be angling for Sports Authority’s customers.

Oscar Barrios, a sales associate with the Finish Line athletic wear store in the Ontario Mills mall, figures his store will pick up some business when the Sports Authority there closes.

“I think more people will be coming in to buy shoes from us,” he said. “It will probably increase our foot traffic.”

U.S. Bankruptcy Judge Mary Walrath, concerned that money from liquidation sales of Sports Authority’s assets was going to pay off certain creditors and not others, threatened to push the case into Chapter 7, under which a trustee would oversee the liquidation.

She postponed that decision until a May 3 hearing to give creditors more time to decide whom they want to direct the liquidation: company management or an outside trustee, according to Reorg Research, a firm that tracks bankruptcy cases.

Victor Camerena, who owns a Submarina sandwich shop adjacent to a Sports Authority store in Oceanside, was surprised to hear that all of the locations will be closing.

“Some of their employees come in here about four times a week and they were under the impression that the company wasn’t going to close that store,” he said. “But the way the economy is, and with the minimum wage increases, profit margins are getting tighter and tighter. It’s getting difficult for companies to stay in business.”