Dick’s Sporting Goods expands House of Sport stores

While many retailers are looking for ways to reduce the number and square footage of their stores, Dick’s Sporting Goods it gets bigger.

The retailer is building larger “House of Sport” stores, typically ranging from 120,000 to 150,000 square feet, more than doubling the 50,000 for its traditional locations. The sporting goods company believes it works.

“We needed to create the concept that would take away Dick’s Sporting Goods,” Edward Stack, chairman and son of founder Dick Stack, told CNBC in an exclusive interview at the Dick’s House of Sport store in Pittsburgh. “We need to establish the concept that if someone else builds this store across the street from us, we’re out of business, and that’s exactly what we did.”

As shoppers prioritize experiences and preferences, locations allow Dick’s to meet them where they are. Most House of Sport stores feature two-story climbing walls; sports cages for testing bats; field hockey and lacrosse sticks with statistical feedback; open-air areas that function as ice rinks in winter; and golf simulators.

Beyond experiences, House of Sport devotes three times as much space to shoes as a legacy store; Additionally, the House of Cleats section includes 400 types of football boots and other brands and products specific to the concept.

“[House of Sport] It’s been wildly successful,” Stack said. A typical House of Sport store generates annual sales of about $35 million across channels, with a roughly 20% return on interest, taxes, depreciation and amortization “so they’re extremely, very productive.” Dick’s Sporting Goods doesn’t disclose EBITDA for the entire business, although it reported pre-tax earnings of 14% in its latest quarter.

Before House of Sport’s first location opened, Wall Street thought the retailer should close stores and reduce its footprint, Stack said.

“Their concept was, ‘I don’t know how many stores you have, but you have a lot of stores,’ or ‘I don’t really know how big your store is, but it’s too big, you need to make it smaller,'” Stack said. “When I told them, ‘Hey, our philosophy is that in 10 years we’ll probably have the same number of stores, a lot more square footage, which didn’t work out so well and our inventory stagnated a little bit because of that.'”

But Stack was not deterred.

The retailer’s first “House of Sport” store opened in 2021, and the newest location in Jersey City, NJ, just outside New York City, opened this month. Dick’s plans to expand to 35 stores by the end of the year and 100 stores by the end of fiscal 2027, in addition to its more than 850 stores across its Dick’s, Golf Galaxy, Field & Stream, Public Lands and Warehouse Sale banners.

The concept has risks. Dick’s Sporting Goods CFO Navdeep Gupta said on earnings releases that opening a House of Sport store required a net capital expenditure of approximately $11.5 million; This is a significant cost outlay for a brick-and-mortar retailer at a time when more sales are shifting online.

Additionally, most House of Sport locations are located in shopping malls that face challenges with shopper traffic. Recent examples show that even impressive experiential retail does not always translate into financial success and can be difficult to scale. These include Toys R Us, Saks Fifth Avenue and Barneys, which were redesigned after bankruptcy. Nike has had mixed success with its major flagship experiential concepts.

The extra shelf space in House of Sport stores allows Dick’s to showcase more of its brand partners, both old and new. Nike, among other companies, was impressed by the concept, Stack said.

“The Nike management team came and saw [House of Sport]”They looked around and said, ‘This is absolutely the best expression of sport anywhere in the world,'” he said.

“Our relationship with Nike is great,” Stack said, as Nike looks to rebuild other wholesale partnerships under new CEO Elliott Hill. In fact, House of Sport offers Air Jordan and Kobe products made by Nike that are not available anywhere else.

The connection between experience and in-store product testing leads to product sales, Stack said. “It’s not just this visit, it’s also possible they keep coming back afterward,” he said, although he declined to share further metrics.

One of House of Sport’s core product strategy is to showcase newer, smaller, more premium brands such as Varley, Johnnie-O, Faherty, Marine Layer and others. There is also a shared laboratory area where brands are changed approximately every 6 weeks. Currently, UK-based GymShark is using the rotation to test sales at US retail.

Although Dick’s goal is not to sell the same brands that have proven successful at House of Sport in legacy stores, this could open up the opportunity and vice versa.

“Honestly, they were testing us to see what it was like to do business with us,” Stack said, noting managing the On brand, which started in the Dick’s Public Lands store format. Four years later, On is now available in around 450 Dick’s stores and is one of the House of Sport’s “leading brands”, he added.

Brands aren’t the only ones interested in House of Sport. The concept also helps mall owners fill huge empty spaces that once housed department stores.

“Mall developers like us to do this now that they understand what we’re doing, because usually in the Sears wing or the wing that’s had a department store that’s been vacant for a while, that wing of the mall generally doesn’t lease very well for developers,” Stack said. Most House of Sport stores are located where Sears, Lord & Taylor or Nordstrom used to be in class A or B department stores.

Megastores aren’t the only Dick’s risk troubling Wall Street. Investors aren’t selling at the retailer yet $2.4 billion Foot Locker acquisition.