Dick's Sporting Goods is taking its e-commerce destiny into its own hands by moving away from partner eBay Enterprise and to its own platform in a move the retailer hopes will improve profit margins and boost sales.
When the sporting goods giant reported its first quarter earnings on Tuesday there was a heavy dose of e-commerce talk. Dick's CEO Ed Stack covered the company's e-commerce plan and reiterated what was said in April at an analyst meeting.
Our focus on e-commerce continues to pay off, with e-commerce penetration growing to 8.5% of sales in the first quarter of this year, compared to 7% in the first quarter of 2014. We have significantly outpaced the market, and have picked up market share in the online space. We moved up to number 70 on the internet retailer top 500 list in 2014, and we grew at nearly twice the pace of the industry.
Dick's move to take control of its e-commerce operations comes at a critical time. The company's sales disappointed Wall Street on Tuesday and analysts have been questioning the returns on Dick's large store format. Dick's maintains that its large stores are an advantage and will be increasingly critical as the company uses them as showcases as well as distribution centers for online sales.
The plan for Dick's is to move its primary site to its own platform by January of 2017. The company has relaunched its GolfGalaxy.com site. Dick's move is similar to what Target did when it took back its e-commerce operations from Amazon. As omnichannel becomes a driver of brick-and-mortar sales, more retailers want total control.
Dick's said the rationale for controlling its e-commerce platform is to improve profits, differentiate itself online, better leverage customer data, improve agility and control development.
Here's a look at the division of e-commerce roles between Dick's and eBay today as well as the technology roadmap.
According to Dick's controlling its e-commerce operations and launching its own platform will improve profit margins because it'll pay less to eBay Enterprise, formerly GSI Commerce, in fees. The catch is that expenses in headcount, technology as well as shipping expenses could go up. In addition, Dick's will have to work more closely with its vendors to make sure it has enough inventory across e-commerce and its physical stores.
Regardless, Stack said the company's e-commerce unit will be "meaningfully more profitable without the GSI fees." GSI/eBay Enterprise charge fees based on percentage of sales and Stack said it's hard to leverage costs. For instance, eBay gets paid a percentage whether running shoes shipped are $50 or $100. If Dick's ran its e-commerce unit, the costs would be static and the more expensive pair of running shoes would flow to the bottom line more easily.
Analysts questioned that assumption given that Dick's will see higher costs to run its own e-commerce operation and could cannibalize stores.
Stack said on Tuesday he didn't know what the ultimate mix will be between digital and physical sales. He added:
I think everybody is still trying to figure out what that appropriate mix is. Our eCommerce business continues to grow at a pretty rapid rate. We've talked about that we're opening stores in markets where we have little penetration or no penetration.
From an e-commerce standpoint, we continue to work very closely with our vendors. They're trying to help us also drive our e-commerce business. Whether that's from broadening the assortment online and shipping directly to the consumer on a direct ship basis from the vendor, or working with us on some short run opportunities, short run closeouts, short run promotions that there's not enough product to fill all of the Dick's stores, But we can put it online and be out of it in three, four days a week or so. So we continue to work with the brands.