Advantages of Vertical Integration

Dick's Sporting Goods doesn't invest in vertical integration stategies like most companies do. Since they are a retail giant, their strategies are a little different. They have chosen a route in which they acquired the rights to some of their top brands and have vertically integrated those brands into their retail strategies. Top-Flite Golf clubs and apparel are one of those brands. They now have more control over the manufacturing and output of these units.

You could also look at some of their private lables and private brands that fall under DSG. This is another form of vertical integration that allows the company to drive efficiencies into their stores and increase profit margins.

A future strategy could be for DSG to bring in their own company employed installers for their fitness equipment and outdoor sports equipment. Today, they use outside contractors for these in-home installations. This would allow them to lower the costs to the customer and provide a superior service as well. It would also keep all the control of the sale in-house, thus creating more efficiencies.

Dick's will need to continue to look for ways to take advantage of future vertical integration opportunites to stay ahead of it's "creeping" competitors.

Happy Halloween!!

DSG 's reputation is greater than the rewards of collusion!

I've spent a lot of time researching collusion in the retail industry. Specifically, I was trying to find anything that would have put Dick Sporting Goods in the news. I found it difficult to imagine that after all the years Dick's has been in business that I couldn't find anything outside of a humorous artcile about a competitor's CEO tryinig to get an inside look of the shipping practices of Dick's by going undercover!

Dick's believes their reputation and the service to their communities is one of their core responsibilities that their senior mangement team must manage.  I've attached a link that illustrates this importance!

http://media.corporate-ir.net/media_files/irol/13/132215/corp_gov/code_ethics_0205.pdf

I posted the following link just because I found it funny!

http://www.dailyfinance.com/2014/03/03/warren-buffett-investment-advice-modells-ceo-spy-dicks-sporting-goods/#!slide=2128995

Product differentiation - SPORTS MATTER

It's really difficult to use product differerentiation as a competitve advantage with large retailers. Dick's Sporting Goods is no different, as it's products are very similar to their competitors. As I mentioned in a previous post, they can use their buying power and size to offer their customers a greater span of products. But, all in all those products aren't a lot different than what Sports Authority or some of the others can put in their stores.

That being said, I still believe Dick's has an advantage with product differentiation based on how they have differentiated themselves through community service. Dick has no competitors when it comes to what they do for their communities and youth sports. Their programs create a loyal customer base and also create a future customer base by the impact they have on the young kids who benefit from their generosity.

Check out the attached video to see just how they impact their local communities.

"Dick’s Sporting Goods: Sports Matter "

https://www.youtube.com/watch?v=LhzS5_stAvs

Dick's takes advantage of Economies of Scale

As Dick's Sporting Goods has continued to grow their footprint throughout the United States, they've created their single largest cost advantage as compared to their competition. Their buying power with some of the largest athletic apparel manufacturers is second to none when it comes to the big box stores.

Typically when you are discussing cost advantages and economies of scale you are referring to large manufacturing companies. But when you consider these priniciples with retail organizations, it demonstrates the power of size and what that means for their contributions as it pertains to margin per unit. Dick's has an overwhelming advantage in the marketplace. Their greatest competitor on the national scene is Sports Authority and their footprint only equates to about 60% of Dick's. All the other competitors are regional in nature like Big 5 Sporting Goods. Unlike the manufacturing industry, these advantages can actually be seen in the stores. The next time you walk into one of these stores, take a moment and compare the levels of inventory or options that Dick's has in their offerings as compared to the others. Not only does Dick's use its cost advantages to improve margin, but they use these economies of scale to provide additional products and services that their competition simply can't do. They have used this important cost advantage to grow their product lines thus intriquing more diverse consumers to frequent their stores.

This not only allows them to continue to grow, it also serves as a life line when the economy goes through downturns or recession periods. They have a plethora of product offerings and the advantage to lower prices and create marketing promotions that help keep the stores busy when money is tight and consumers get nervous. Their margins do take a hit, but their buying power affords them the luxury to survive profitably.