2010/11 SNEWS FitBiz Retailer Report: Looking better, but it ain’t ‘kittens and lollipops’ yet

From dismal to hopeful to “cautiously optimistic.” That’s been the progression in the last three years among retailers in our annual FitBiz special report by SNEWS® that covers the state of specialty retail.

It was surprising – or not – how many retailers used those exact words. Really. Did they all get the same memo?

For this year’s report, the 8th annual by SNEWS, we reviewed highlights of the previous year in specialty retail (2010) with lists of the top retailers by store counts, as well as a list of the top sporting goods and mass merchandisers who also are key to the industry. You can find that chart in a PDF form for easy reading and downloading by clicking here.

Again on the web rather than in magazine format, FitBiz remains what it always has been: A way to look back and find out what really has changed. We find that time flies and, invariably, we say to ourselves, oh man, did that just happen last year? We bet you do too.

Although the previous three FitBiz reports seemed to focus on closures, bankruptcies, and the overall economic nightmare, this year was different. No, most we communicated with aren’t ready to leap up and down and chalk up multiple double-digit sales increases, but there is an optimism we haven’t heard in a while seeping into most answers.

But, as one retailer put it, “It’s by no means kittens and lollipops yet.”

Perfect description. Although 2010 left many feeling more optimistic, it was still a bumpy ride and not all sweetness: Some weeks or days, the sales were rockin’, but other weeks, folks wondered where everybody went.

Good news first
And despite some losing numbers or totally shutting down, there were indeed a few newbies, including:

>> Fitness Equipment Northeast, with Mike Connolly, kicking it in with three within months;
>> the “new” HEST fitness (again with the Kesslers at the helm), also starting with three;
>> California Home Fitness in Southern California by two ex-Busy Body Home Fitness pros not only debuting but also climbing to three by the end of the year;
>> Xtreme Fitness, which is not on the list with just two but Joe Gulino still has managed to slip into the Northeast;
>> Fit3, the superstore with not only fitness but also sporting goods, swung open its doors for the first time in December (and has by the way already announced more stores this year);
>> Workout World, which came ashore in California from Australia and already has two with more in the works;
>> Creative Playthings’ own fitness store, a pilot for the swing set company; and
>> James Bond Fitness with one in Austin with industry long-timer James Bond.

In addition, Total Fitness Equipment –- again, we should say the “new” Total Fitness – went from a newbie in mid-late 2009 to five at the end of 2010.

Now the bad news
Gone are: Fitness Systems out of Tennessee, Northern and North Star home fitness in the Midwest, and Chicago Home Fitness as an independently owned shop (now owned by Chicago-area sporting goods retailer The Great Escape).

That doesn’t sound so bad in comparison, right? Look at all those new shops and just a couple of ones that aren’t around anymore. It does look a little different once we tally the numbers.

Our FitBiz report a year ago found at the end of 2009, there were:
* 299 storefronts owned by 19 different businesses with at least five or more stores.
* Add in those with four stores, and the count moves to 319 owned by 24 separate businesses.

This year’s research found at the end of 2010, there were:
* 268 storefronts owned by 20 different businesses if you count those with five or more stores – or 31 less (a 10.4-percent decline) from a year earlier.
* Tally in those with four and the count moves up to 288 owned by 25 separate businesses – also 31 less (in this case, an 9.7-percent decline) from 2009.

Click here to access our entire report covering the 2009 year and click here to see all our FitBiz archives from 2003-2009.

With the count down, we decided this year to extend the list to add in those retail businesses with three or more stores. (OK, OK, we know we’re going to forget someone … like not seeing the forest through the trees … so let us know if you were forgotten, please, by emailing snewsbox@snewsnet.com) Our nose count has that decision adding 24 stores spread among eight more businesses – totaling just 312, still down from last year’s four-or-more total store count at 319, which ain’t exactly apples to apples but it paints a picture of the decline. That even counts three totally new retail businesss.

Want more perspective? The peak number in our counts since we started doing our FitBiz report eight years ago was in 2007 with – are you sitting down? – 540 separate businesses among only a top 25. We actually had to limit our nose-count then to a top 25, even leaving off some with five or more. Now we’re up to a top 33 among those with THREE or more.

“The days of 2005 are long gone, but you keep your overhead down and do what you can do,” said one West Coast retailer.

And how about sporting goods and beyond?
Of the major sporting goods and fitness retail chains that grew their store counts in 2010 – many held steady – it was modest growth. For most retailers, it wasn’t until late in the fourth quarter when they got proof that the economic recovery had at least started to kick in.

Along with stronger consumer confidence, a cold and snowy winter in the Northeast also helped propel some stores’ bottom line on indoor fitness items. Still, projections for store location growth in 2011 remain steady, as companies remain cautious. If they grew stores by 5 percent in 2010, the sporting goods and mass merchants expect 5 percent growth in 2011.

A lot is sure to depend on the real estate and credit markets. It could be another flat year for housing, which means little residential growth to fuel new stores. And while the credit markets are starting to loosen, rising interest rates are looming on the horizon for 2011, which could temper growth, or perhaps spur it for a moment before further increases. And unemployment remains high enough to cause continued concerns, just as does the swings in consumer spending and confidence.

The good news – evident in our research of the 2010 figures, annual reports and projections – the economic downturn has spurred innovation and new ideas to expand business, rather than just the blunt instrument of store-count growth.

The large sporting goods and fitness retailers — and yes even mass retailers like Wal-Mart, Target, Sears, and Costco, which sell fitness equipment too – proved they still have some entrepreneurship left in them with new smaller-store concepts, updated sales strategies and existing-store redesigns. Best Buy even decided it was time to give it a whirl, just as The Great Escape took over Chicago Home Fitness as its step into fitness.

Sports Authority began testing its new smaller S.A. Elite concept store with two new openings in the Denver area in 2010. The 12,000 to 15,000-square foot stores are half the size of the company’s normal formats and look to locate in higher-end malls and retail centers. The stores put a greater focus on performance and fashion athletic apparel, footwear and accessories, rather than large pieces of equipment.

And while many brick-and-mortar stores tend to speak softly of e-commerce, there are signs that growing online sales (from their own websites) could keep future physical store growth modest while revenues stay up. Sport Chalet, for example, reported same-stores sales down 1.1 percent through its fiscal 2011 third quarter on Dec. 26, 2010, but its total nine-month revenue eked a 0.30-percent gain partly due to stronger growth in its e-commerce sales.

In sum
Nobody ever expects the fitness retail industry to return to those fat days of 2005 and 2006, but most who remain have taken today’s reality seriously. Cost cutting, renegotiating leases, leaner inventory, fewer storefronts that cover a broader area – these tactics are all part of lowering overhead to survive. And that’s what they can take to the bank.

Click here to download the PDF charts to accompany this story. You can access our entire report from last year by clicking here and, to see all our FitBiz archives from 2003-2009, click here.
–Therese Iknoian with David Clucas

The small print: Remember, our list of top retailers is only based on store numbers. Yes, we recognize that the number of doors a store has may not fully represent how good or how strong a retail brand is or even how high its revenues are. But since it is the only black-and-number we have — and the only one we can take to the bank — that’s what we use.

Questions or comments? Drop us a note at snewsbox@snewsnet.com.