Introduction
Companies competing in the free-market economy are always risking facing bankruptcy and subsequent closing. Over the past two decades, in the United States alone, more than half a million businesses have been forced to file for bankruptcy (Statista Research, 2021). Some of them were internationally recognized brands, while others, at some point in their history, had nationwide success. Sports Authority is an example of a company that despite having a presence almost in all major cities across the United States, eventually had to close all of its operations (Ewen, 2016). Sports Authority’s bankruptcy was preceded by several failures on the part of the company, which included growing debt, the inability to be competitive, and the rise of online shopping.
About Sports Authority
Sports Authority is a brand that is known to Americans for several generations since it has been in operation for a considerable time. Sports Authority was founded in Florida in 1987 and was soon acquired by Kmart in 1990, which enabled it to become a national retailer of sports goods (Mirabella, 2016). Later, in 2006, the company was bought for $1.1 billion by Leonard Green & Partners, which was one of the largest deals in the retail industry at that time (Ewen, 2016).
Despite the debt, which became one of the main factors of the company’s crisis, Sports Authority continued to generate substantial revenue even in the months before the bankruptcy. For instance, in 2015, the company reported more than $3 billion in revenue and stated that it employed sixteen thousand people (Mirabella, 2016). Nevertheless, even the steady sales did not save the brand from facing bankruptcy, for which it filed at the beginning of 2016 (Ewen, 2016). Thus, Sports Authority officially stopped its operations almost thirty years later since its foundation, and there were several main causes for it.
Causes of the Failure
Debt
One of the main factors which led to the brand filing for bankruptcy was the debt which had been growing for a long time. As mentioned earlier, in 2006, the company was acquired by Leonard Green & Partners for $1.1 billion, which automatically transformed into a debt (Mirabella, 2016). Essentially, Leonard Green & Partners put the sum which it invested in the company as a debt on the balance sheet of Sports Authority.
The idea was that the company’s success and growing sales would enable it to service the debt itself and settle it in the coming years. Nevertheless, the plan did not come to its fruition, and the sales targets outlined by the top management were not met by Sports Authority. Moreover, the existing debt prevented the company from advancing further, including in terms of investing in renovations and embracing new ways of marketing products. As a result, the debt accumulated by the company in 2006 eventually caused it to go bankrupt ten years later.
Competition
Another noteworthy factor leading to the bankruptcy of Sports Authority was the rising competition from other sports retailers in the United States. Other brick-and-mortar chains such as Dick’s Sporting Goods managed to outperform Sports Authority in the realm of customer experience. For instance, Sports Authority, due to the debt, could not invest in store remodeling, unlike Dick’s and other similar retailers, which could offer more pleasant interiors for clients (Ewen, 2016).
Moreover, major sportswear brands such as Nike and Adidas also opened numerous stores where they sold their products at times at lower prices than at Sports Authority. Major sports brands opened more of their stores and increased sales of their products by taking Sports Authority’s share of the market. Additionally, Sports Authority also faced competition from discounters such as Wal-Mart and Target, which let people buy sports goods at bargain prices and do it while shopping for other products. Thus, the growing level of competition also contributed to the crisis at Sports Authority and eventually caused its bankruptcy.
Inability to Keep Up with Trends
Sports Authority always focused on selling various sports goods, yet, the chain failed to recognize and embrace the new trends in the sports fashion industry. Essentially, Sports Authority’s specialty was professional sports gear which was ideal for athletes participating in official competitions but no longer suited an average person. At the beginning of the 2010s, the sports fashion industry saw a rise in the popularity of activewear, sports clothes intended for amateur casual athletes (Lieber, 2016).
In other words, customers no longer wanted their sports clothes to look ordinary and instead needed a designer touch. For instance, Dick’s, the main competitor of Sports Authority, recognized the new trend and launched its fitness collection with singer Carrie Underwood and opened another brand called Chelsea Collective, focusing on athleisure (Lieber, 2016). Sports Authority, in its turn, failed to employ the new trends, which made the brand less popular among customers. The fall in demand for Sports Authority’s range of products also became a factor contributing to the bankruptcy.
Online Shopping
Finally, Sports Authority overlooked the increasing popularity of eCommerce and did not manage to adjust to the changing circumstances of the market. It is projected that in 2022, online sales will surpass 20% of global retail sales, and the number will continue to rise in the future (Niersbach, 2021). At the beginning of the 2010s, eCommerce was only gaining momentum, but it was already sufficient for disrupting the existing status quo. As a result, many brands which had numerous brick-and-mortar stores across the country found it difficult to compete with online retailers, such as Amazon and Sports Authority was one of them (Jones, 2016).
Although the company had its eCommerce store open for clients, its shipping infrastructure did not have the same quality as that of Amazon and other online-based marketplaces and shops. As a result, the level of competition faced by Sports Authority was extremely high since there were both brick-and-mortar and eCommerce retailers which outperformed the chain in various aspects.
Conclusion
Once one of the largest national sports goods retailers, Sports Authority, had to file for bankruptcy in 2016 due to its failure to adjust to new market circumstances. Leonard Green & Partners, the firm which bought the brand in 2006 for $1.1 billion, placed the sum as debt on the retailer’s balance sheet hoping that it would serve itself. Yet, the existence of the debt prevented the company from allocating any substantial resources to investments in infrastructure and other areas of the business, thus undermining its competitiveness. At the same time, consumers began to give their preference to large discounters such as Target and internationally recognized brands, including Nike.
Moreover, the sports fashion industry underwent a considerable change which resulted in the emergence of new trends such as casual activewear, which Sports Authority, unlike its competitors such as Dick’s, did not embrace. Finally, the rise of eCommerce and the popularity of Amazon and other similar marketplaces eventually drove Sports Authority to its bankruptcy.
References
Ewen, L. (2016). How Sports Authority went bankrupt—and who could be next to fall. RetailDive. Web.
Jones, C. (2016). Sports Authority shutting down with giant going-out-of-business sale. USA Today. Web.
Lieber, C. (2016). The death of the great American sporting goods store. Racked. Web.
Mirabella, L. (2016). All Sports Authority stores to be liquidated and closed. The Baltimore Sun. Web.
Niersbach, P. (2021). The new balance between e-commerce and in-store shopping. Forbes. Web.
Statista Research Department. (2021). Annual number of business bankruptcy cases filed in the United States from 2000 to 2020. Statista. Web.