Retail Report: SMC’s Tom Gately on why specialty retail still matters

In this episode of the SNEWS WinterSports Retail Report, we talked to Tom Gately, president of the Snowsports Merchandising Corp. (SMC), a specialty retail buying group representing 64 stockholder businesses and 154 specialty retail storefronts. Following up on the group’s November hardgoods meeting, where Gately and six committee members get a firsthand look at the top gear manufacturers will have on display at the SnowSports Industries America Snow Show in January, Gately talked about why specialty still matters, what’s hot and what’s next.

SNEWS: With all of the big-box consolidation in other industries, why do you think specialty retail remains so strong in sports such as skiing, outdoor and bicycling?

Tom Gately: I think it’s the nature of the products. A lot of them are highly technical products that require a level of expertise to properly explain and sell. Take boot fitting, for example. It’s a hard plastic product with a performance element that’s matched by the need to have it fit properly on the foot. Thank god, a lot of areas that we specialize in are areas that require expertise because there are a lot of parts of the world where specialty is not strong. Skis are sold in grocery stores in Europe, and I don’t think in that case it’s nearly as profitable for the manufacturers. In those cases, the staff don’t have the expertise or the time to sell up for the higher margin equipment.

I think for that reason, North America is the most profitable market in the world for ski suppliers. The material costs of a racing boot and an intermediate boot can’t really be that far apart, and I have to believe the margin is much more substantial in high-end boots for the suppliers. So I think it’s the nature of the products more than anything else that drives the success of specialty retail. Of course, the challenge of our industry is that online retailers are getting better and better at providing that level of service that we have always provided, whether it’s with pop-up video explaining the products, or having someone to chat with, so the specialty retailer will have to provide better and better service, as well. But I don’t think there will ever be a substitute for touching and feeling a product before you buy it.

SNEWS: Now that we are just about into December, what early reports are you hearing from your retailers?

Gately: So far, I’ve been hearing positive things. It’s interesting that the amount of positive news in its normal course is to play off where the last season ends. The Mid-Atlantic was the best territory last year, and it’s outpacing other territories this year. We seem to live and die by one region being stronger than another each year, and right now the farther away you get from the Mid-Atlantic, whether that’s in New England or in the Southeast, you still need to have the weather arrive to kick off the season.

We poll our members throughout the year, and though it’s not especially scientific, through the end of October, overall we’re up 5 percent. Some of the retailers in the Mid-Atlantic are reporting that they are up 15 to 20 percent, where some of the western retailers are down a little bit. Some of the city stores are starting to run out of product, which is positive, but also frustrating because nobody likes to leave a dollar on the table.

SNEWS: And this is all product that is selling at full margin?

Gately: Actuall the margins are better this year, maybe even by a couple of points. We don’t have the online discounters to compete with because all of the product got cleaned out of the inventory, so there are no brand issues with last year’s products selling through the heavy online discounters. There was actually enough of a shortage of last year’s product that at the early sales this year, our members were able to add new product into the mix, and the end result is that margins are better and inventory is cleaner.

The dilemma — although maybe not yet — but soon, is going to be if there is a shortage of product where everybody is feeling the challenge of leaving money on the table. The store doesn’t want a consumer to walk and look for a product somewhere else, and the supplier doesn’t want to lose a sale either. So the challenge is not to go back to the glut of the past where everyone is afraid of missing a sale. One of our members likes to say that inventory is the hot potato, and nobody wants to be stuck with it. Especially the large corporations that are in the industry now, where inventory is a bad word and nobody wants it. I think we need to have some understanding of regular products that will be available year-round, year after year, where we can order them as we need them, and the inventory turns, just like in any other industry.

SNEWS: Is there a sense that retail has weathered the storm?

Gately: I think there is. I think in our business people are spending money in our stores. The greatest thing that we see is the business geared toward families. People are recognizing, or remembering, that wintersports are a great family activity, and junior product especially is doing great now. Families are buying all the components, and the lease business is off the wall. Families have found that they are going to recreate and should be spending the money on gearing up for the coming year. I think we’ve weathered the storm, but a lot of what happens next is still dependent on the weather. There’s a lot of exciting electronic stuff hitting the market right now, and if the weather turns warm, people might decide to set their budgets on something else.

SNEWS: Did you lose any retailers because of the recession?

Gately: The good news is we gained a member already. We are a very stable organization. Growth is not really our goal. We are not interested in getting hugely bigger. And the one thing we’ve been educated on through the financial crisis is to be more discerning about the members we allow into the group. Suppliers look to us for a higher level of comfort on the credit side, so we certainly have to have our homework done on who we let into the group. In terms of growth, with every member we bring in, it brings more risk.

SNEWS: What is the consumer saying about rocker? Do they understand it?

Gately: I think they’re starting to understand it. I think there is probably still some trepidation about rocker on hard snow, and that comes from the buyer right down to the consumer level. I don’t want to mention specific ski areas, but some have pretty firm surfaces, and that’s where most of the trepidation is from, wondering if rocker really works at those areas. It certainly provides something new to talk about it, and consumers are talking about it. But if you stand in liftline, how many skis are rockered? There is a wealth of people that still have to hear the story. And it really is hugely different from East versus West, where I would venture a guess that the product mix of rocker is probably 10 to 15 in the East, and much more in the West.

SNEWS: There’s a lot of talk about demos killing ski sales — what’s your take?

Gately: I think if we continue to promote people buying skis, we will be better off as an industry because people will be more committed to the sport. If we get to the point where people are just going to rent, and just rent current equipment, it will show up in the number of days they participate. People who have bought a pair of skis or boots are more committed to the sport. I don’t think it’s any different than someone who has bought a set of golf clubs. I can’t imagine someone feeling good about renting clubs every time they go to a golf course. It is such an individual sport that there are too many ways that their experience is going to be affected by changing clubs every time they golf, and I think it is the same with skis. You can get right down to the tuning of the skis to talk about how highly an individualized sport skiing is, and the more comfortable people are on their equipment, the better time they will have.

SNEWS: So is hardgoods still a business to be in?

Gately: I definitely think so. For a store to have the ability to connect with the frontline consumer on what is the appropriate product for them is very important. Specialty retailers are expected to share what is right for the end-user, on skis and on ski boots, for sure. I can’t imagine a real specialty store not being an accomplished boot fitter. Skis are obviously much sexier, providing a broader billboard with the graphics, but boot fitting is key to the specialty experience. What a specialty store does best is try to match the right equipment with the right customer. I don’t think anyone would be a real specialty retailer if they didn’t sell hardgoods.

SNEWS: Is the late product delivery crisis over, and what is the long-range impact?

Gately: This is really just about softgoods. I know it affected some early season promotions, but people are only just now starting to buy the new stuff. In October and November, we’re trying to stimulate people to come in, and trying to stimulate that through promotion, so for anyone concentrating on those types of new items, it had an impact. Now we are in the part of the season where it is not as price driven, and is more about selection, look, fit and feel. And I know that I have been fielding calls about what to do if the product has not arrived and it is past the cancellation date. That decision is probably based more on each store’s comfort level with the success they are having with that type of product, and of where they are at now with their present inventory levels.

SNEWS: Will this result in softgoods suppliers asking for earlier orders?

Gately: Probably. It will make it tougher on the retailer. We will have to make a bigger crystal ball. We are already being asked to preview stuff in October, November and December, and make orders for the following year. I think softgoods is a much more difficult buy than hardgoods, and for the suppliers, the earlier the order, the more the tendency is to be more conservative than normal. Right now, it is even more critical where stores are trying to pick winners, so retailers will buy less, and that will maybe result in an order that is not as meaningful.

SNEWS: What trends or equipment have you seen so far that you are excited about?

Gately: From skis, there are a lot of rocker stories being told from every company. What is most interesting to me is that almost all of it looks good. In the past, there have been really clear winners and really clear losers. But the people who were lagging in the past have really stepped up their game. The products being offered from the lesser tier companies — I can see where they would resonate with the market leaders. The offerings for next year seem to be much more consistent toward each other in terms of market viability, and we didn’t walk away from any meeting thinking that one brand or another has a huge challenge to make their offering work before the show.

SNEWS: And what are you expecting heading into the SIA Snow Show?

Gately: For us, it is an opportunity to get all our members together in one place, and it is the only time that we do that all year. People are members of the group in order predominately to share ideas, and the pressure on us as buying group management is to deliver to the stores the most positive experience they can have while we are all there. So we are always looking at ways to enhance our show, whether that is through innovative exchange, or spotlighting what are the hot brands for next year, or discussing what the open to buy is going to look like. That kind of information exchange is very helpful, and we have all kinds of meetings like that.

One of the biggest things for us at the show is our Mega Deal meeting the night before the SIA Show starts. In terms of people saying this is not a writing show, we work with our vendors to put together deals where we will write an order for one item out of their line if they make a special offer to us. It has become a focal point of why someone would belong to the group, so they can get this kind of a deal on a tried-and-true model. Last year, our group wrote $3.8 million worth of orders in two hours on 30 hardgoods products and 30 softgoods products, and the suppliers actually had those orders in hand on Thursday morning just as the show started.

–Peter Kray

On Oct. 6, 2010, veteran journalist Peter Kray joined the SNEWS team and is now editor of the new SNEWS WinterSports channel. We trust you are enjoying the full offering of WinterSports news. Be sure to email your friends and let them know the best WinterSports news has arrived — just in time for the start of the winter season. Got WinterSports news? Send your WinterSports news to Kray at pkray@snewsnet.com. Subscribers can also post WinterSports news releases directly to the SNEWS website. Email us at snewsbox@snewsnet.com to learn about posting your own news releases, or for any other questions or comments. We love to hear from our readers!