The Sports Authority Bankruptcy: Symptom of a Perfect Storm and How You Can Benefit

TSA’s filing for bankruptcy on March 2nd wasn’t a surprise. It had missed a $20 million bond interest payment in mid-January. It reached an agreement with the bond holder to file and try to sell assets to pay down debt. We’ll see how that works out and if they can avoid liquidation.

A couple of people asked me when I was going to write about it, so I sat down and started working through some of the bankruptcy court documents. Here’s the link to the court documents should you be inclined to plod through any them yourself.

But then I noticed that some other people had undertaken the task of plodding through them.  Between all those articles and court filings, your need for details of the filing should be well and truly sated.

Now let’s get to what I’m calling the strategic background. In an operational sense, you probably only care about TSA’s bankruptcy if you’re an unsecured creditor. Like most unsecured creditors in most bankruptcies, you shouldn’t expect to see a lot of your money.

From a business environment perspective, however, you care quite a lot because you are dealing with the same global competitive imperatives that took TSA and other companies down. Four things.

First, we’re over retailed. Nobody reading this is surprised to learn that. We have massively too much retail and it’s going away slowly but continuously. Notice I didn’t just say we have too much brick and mortar retail. In whatever piece of the omni channel you are talking about there is too much product from too many brands without enough product differentiation.

Second, we’re in a slow growth economy and my guess is we will be for a while. There’s another big surprise. Obviously, it exacerbates the over retailed situation.

Third, the internet has made traditional ways of competing increasingly obsolete. The customer is powerful, product differentiation is tough and in conflict with growth, and the advertising and promotion techniques we used for so long don’t work very well.

Fourth, the things that used to provide a competitive advantage if you did them well are now things you need to do just to compete. The days of easy cash flow and dependably rising sales papering over inefficiencies with your supply and logistics functions are gone. I’m sure you’ve noticed how many companies are focusing on improvements in these areas. Recently, you’ve heard Billabong CEO Neil Fiske talk about growing profitability even with low sales growth. He’s not the only one.

It’s a perfect storm. If you think about it just a little, you’ll probably conclude what I’ve concluded- each of those four reinforces the other three. It’s a rather powerful feedback loop.

How to break out?

Not to sound like a broken record….. Uh, scratched CD? Maybe corrupted file? Anyway, since at least 2007 I’ve been preaching the same business model. Build your balance sheet, control distribution, reduce traditional marketing expense, improve your systems and procedures not just to save money but to be more customer responsive. Many companies have taken this approach, though not because I suggested it. If you see the circumstances as I see them, there’s a certain common sense approach to it.

A lot of this is pretty reactive and not much fun. But it’s good business and don’t you wish you’d done a lot of it around 2003?

If we’re stuck in this grinding, slower growth business and economic environment for a while longer, how can you be something besides defensive and reactive?

Let’s start by assuming that you don’t sell a product or products that are fundamentally different (or can be positioned as fundamentally different) from those of your competitors. If you do, and you can continue to have such a product, good for you. You’ve got a whole different set of challenges and opportunities.

For the rest of us, which I believe is most of us, you don’t have to just hunker down.

Action: Know your customer and follow their lead. What do they think makes you different?

Result: Lower and more effective advertising and promotional expense. Higher credibility with your customers even if the customer base might turn out to be smaller.

Caution: There’s a limit to how far you can follow before you find yourself in a market you shouldn’t be in.

Action: If you believe that you are a specialty brand, act like it. Control distribution, consider raising prices, be tougher in what you offer to do for retailers. If your product sells through at good margins, I guarantee they will want it.

Result: Higher margins and gross profit dollars generated, better brand differentiation, probably lower operating expenses.

Caution: If you aren’t in fact a specialty brand, this can blow up in your face.

Action: Take risks, do unexpected things not necessarily consistent with what you believe your brand image to be, surprise your target customers, make them your partner. More than ever, the biggest risk is taking no risk at all.

Result: Brand differentiation, identification of surprising new opportunities, improved customer loyalty.

Caution: You can make your customers go “Huh!!?!?” When it happens, apologize and move on. Minimize this by taking your risk cues from your customers.

Action: Make sure your web site looks good on mobile devices. I shouldn’t have to say that at this point, but I still see enough that I feel like I do.

Result: Your customer or potential customer doesn’t say, “Screw this.”

Caution: None. You just have to do this.

Just because the environment is a bit tough on various levels doesn’t mean you can’t do some things that are fun, brand building, positive and financially productive. Just thought discussing that would be more useful than talking about The Sports Authority’s balance sheet.