Key Trends and Forces
Hibbett's small store size and target markets secure its high margins
A store size of 5,000 square feet allows Hibbett to operate in lowly populated counties where operating costs are cheaper than even small metropolitan or suburban areas. Opening a new store typically requires an investment of less than $200,000, and past history shows that first year total sales are about $681,000.[1] The majority of Hibbett stores are anchored by Wal-Mart, since the superstore is likely to be the center of retail in the area.
In its first 10 years as a public company, Hibbett achieved an increase in same-store sales for all quarters except for two (one being 3Q of 2001, when the 9/11 attacks occurred). The company, however, has posted negative same-store sales for 4 of the last 8 quarters due to the declining U.S. economy. In 2008, the company will strive to continue its clustered expansion program, which calls for developing new stores within a two-hour drive from an existing one, by opening approximately 85 of the potential 350 sites it has identified. The program ensures that residents in rural areas of the Southwest can shop for a full line of products at Hibbetts without having to commute long distances.[2]
Hibbett's geographic focus- on both the size of the community in which it operates and the region in the U.S. where it is located-creates opportunity for rapid growth
Hibbett thrives in regions where the population is as few as 30,000, something its larger competitors cannot match because of their dependency on a large consumer base. Focusing on rural areas provides Hibbett many expansion opportunities in limited competitive environments while strengthening customer and vendor relationships. Small counties have less access to a full line of products, but Hibbett's existing system of distribution centers allows the company to expand into these markets at low cost; meanwhile, high supply but low real estate demand in these markets means landlords are seeking reliable tenants so Hibbett can pay low property costs. As a result, the company's stores are generally the only retailer exclusively focused on sporting goods retailer in many communities. Meanwhile, it keeps fixed costs low, minimizes corporate expenses and has relatively inexpensive distribution costs.[4]
Hibbett's distribution system contributes to its industry leading margins
Hibbett's 220,000 square foot distribution center, located in Birmingham, Alabama, can service over 800 stores. Company-owned trucks transfer goods from the warehouse to the individual stores weekly. The company continually strives to perfect this system - a few years ago it often took more than three weeks to place new items on the shelves, where as now it takes less than ten days. Implementing new software systems that simplify the process of allocating goods to the stores have helped Hibbett cut its transferring time. This whole procedure, which proves more efficient that the distribution techniques used by other sporting goods retailers, contributes to Hibbett's low operating costs that increase its operating margin.[5] In late 2007, Hibbett decided to delay its plan of constructing another distribution center by at least a year because new stores are expected to be opened further east than anticipated. Consequently, operating costs in 2008 should be lower than if a new distribution center had been built, and Hibbett should therefore be able to maintain its high operating margin.[6]
An economic decline will disrupt the discretionary spending patterns of Hibbett's core customers
Hibbett is one of the first to get hit by a declining economy because consumers lack the disposable income to purchase its products (department stores like Target and Wal-Mart, who offer goods such as food and household products, are less threatened in such a situation). Not only does the poor economy force Hibbett's core customers to spend more money for gasoline and heating costs, but the subprime mortgage fallout and resulting credit crunch contracts their consumer spending even further, weakening Hibbett's sales. Of Hibbett's 745 stores in fiscal 2009, 527 were 5000 square foot stores located in strip malls, which the company says are usually influenced by a Wal-mart store. [7] With consumer discretionary spending falling, many consumers may "trade down" into making their sporting goods purchases at Wal-Mart instead.
Fashion trends and seasonal fluctuations impact Hibbett's sales
As a retailer, Hibbett must anticipate fashion trends and seasonal fluctuations in its choices of inventory. If it makes a mistake in these calculations it will hurt the firm's margins as it cannot sell the goods at high prices. For example, in mid-2003, the company experienced a decline in sales as retro NBA jerseys went out of style, while the company still had an extensive inventory of these products. Hibbett faces a similar problem today as consumers purchase fashionable footwear, available at other specialized stores, rather than the athletic shoes that the company offers. (Read More about Hibbett Sports' Competition...)
Introduction and Overview | Trends and Forces | Competition
References
- ↑ HIBB 2007 10K, Item 6:Selected Consolidated Financial Data, pg.18
- ↑ HIBB 2007 10K, Item 1:Business, pg.6
- ↑ HIBB 2004-2007 10K, Item 1:Business
- ↑ HIBB 2004-2007 10K, Item 1:Business, pg. 5
- ↑ HIBB 2007 10K, Item 1:Business, pg.6
- ↑ HIBB 2007 10K, Item 1:Business, pg.7
- ↑ HIBB 2009 10-K, Item 1 "Business," page 6
