The wow factor Featured

7:00pm EDT November 28, 2003
Walk into a Galyan's Sports and Outdoor Adventure store for the first time and you're likely to step back outside and look at the sign above the door.

This is not your father's sporting goods store. This is Nordstrom meets the Gravity Games.

There are the neatly piled stacks of the latest fashions from adidas, Reebok and Nike and racks of tops and jackets sporting other famous brands. But then you catch sight of the board shop, where the walls are festooned with neon-colored skateboards and wakeboards. In the outdoors area, half a dozen canoes and kayaks appear to drift above shoppers. And then there is the climbing wall -- all 46 feet of it -- soaring toward the ceiling.

"It's a dramatic, engaging experience," says Robert Mang, chairman and CEO of the Plainfield-based retailer which has stores in 19 states, from Nevada to New Jersey. "The only con is that it can be a little intimidating to some people. Some consumers like to be able to see everything from the front door, and that's just not possible with the size of our stores."

Galyan's 43 stores stock products for more than 150 sports and outdoor activities -- in addition to run-of-the-mill athletic apparel -- in their 80,000 to 100,000 square feet of space. There are 15 specialty shops with 40 departments in the typical store, and each store generates an average of $20.5 million in sales each year, compared with $9.4 million at competitor Dick's Sporting Goods.

But the sluggish economy and uncooperative weather have been a drag on profits of late. After earning $18.7 million on sales of nearly $598 million in fiscal 2002, ended Feb. 1, 2003, the company has posted losses in each of the last two quarters due to higher occupancy costs and increased depreciation expenses.

If Galyan's is to continue its remarkable growth rate -- based largely on new store openings -- it needs to keep customers coming back. For Mang, that has meant rethinking store design, adding a low-price guarantee and even changing the company's name.

Making change

"Consumers come here to see what's new -- what's next," Mang says. "Customers are wowed the first few times they come to the store. We want to wow them the 50th time."

Toward that end, the company formed a cross-functional team in 2001 to develop a vision for upgrading the stores. It also put together customer research study groups and discovered that customers felt the floor plan and atmosphere were confusing and dark.

"We are significantly increasing lighting levels, taking out a lot of the timber and making the stores easier to shop," says Mang. "We have improved the segmentation by gender and zone."

Research also showed that the climbing wall was a favorite store feature, so there are plans to move it from the back to a more prominent position near the center of the store.

"The research validated a lot of the opinions we were hearing from people within the company," Mang says.

Some changes are noticeable before customers even enter the door. The company has changed the name of its stores from Galyan's Trading Co. to Galyan's Sports and Outdoor Adventure to better reflect its product mix and positioning relative to the competition. The corporate name remains Galyan's Trading.

Mang says that while the name of a competitor -- The Sports Authority -- tells you what it feels it is, the name Galyan's Trading Co. didn't do the same thing.

"We felt Galyan's Trading Co. didn't express clearly who we are," he says. "Trading what?"

Another issue that needed to be addressed was the perception in the marketplace that Galyan's is more expensive than its competitors.

"Because we carry upscale lines that other stores don't carry, we have the image that we are expensive," Mang says. "We are not the high-priced alternative."

To battle this image -- and combat price slashing by competitors in a weak economy -- the company launched a 110 percent price guarantee: If a customer finds the same product at another local store for less, he or she can return the product bought at Galyan's and receive 110 percent of the purchase price back.

But what drives people to the store and builds the company's profits is the depth and breadth of its product offering, not the prices.

"The major sporting goods stores drive customer traffic with big sales," Mang says. "And you can turn inventory that way. Wall Street loves it when you turn inventory. But there are trade-offs."

Galyan's tries to focus on profit margins instead, he says.

"We have a high penetration in footwear and apparel, which have better margins. That's part of our unique business model," Mang says.

Galyan's also relies on its associates to drive sales, hiring sports enthusiasts and paying them competitive wages.

"We have never had any trouble finding qualified sales staff," Mang says. "Everyone has an avocation. Working at Galyan's offers that person the chance to combine work with what he or she loves to do. Arming them with product knowledge is easy. And we pay well; with commission they can make a good living."

Mang says the company also emphasizes to its staff that they are not salespeople, but enablers.

"They are here to help people find the equipment and footwear they need to enjoy their passion," he says. "We don't necessarily look for people with retail experience. We give them a test, and if they are friendly and enthusiastic, they pass."

The online test gives the company a better way to judge whether a potential employee has the personality or desire to serve the customer.

"A biking enthusiast that's an introvert doesn't do me any good," Mang says.

Racing over the speed bumps

Despite the changes, Galyan's still faces challenges.

"Our biggest operational challenge is managing our growth," Mang says.

The company opened three stores in October -- in Illinois, Ohio and New York -- bringing its total to 43, up from just stores in July 1999.

"Our goal is to open nine stores a year," Mang says. "It's an operational challenge we've just had to grind through. We've hit our speed bumps and glitches; we've had our share of growing pains."

One was the company's new merchandising and warehousing system.

"Any time you have a new system that is integral to the business, there is an adjustment period," Mang says. "There was nothing fatally flawed, no big issues that caused us to crash and burn, just management difficulties."

The company faces financial challenges as well. This year's second quarter sales were good, but expenses have increased and margins are down. So although sales were higher, general and administrative expenses were, as well. And margins were impacted by discounts and bad weather in the company's East and Midwest markets.

But William Blair & Co. analyst Ellen Schlossberg Zickman is not worried about Galyan's financial future.

"Fifty percent of the new stores are financed through the landlord," says Zickman, whose firm also provides investment banking services for Galyan's. "And the company has a newly negotiated line of credit. I'm not concerned that the company can't fund its growth."

Mang says the company will continue to look for new store locations in the Northeast and Midwest.

"We look for areas that experience a lot of seasonality," he says. "Eighty percent of our football business is done in six weeks. Seventy-five percent of baseball is completed in eight weeks. There's always a season being kicked off and one dying down."

Galyan's chooses its locations based on the percent of affluent families with young children in the area, among other factors.

"If 20 percent of the families in the area have annual incomes of $75,000 or more, that will support the store," he says. "We also look at the number of hunting and fishing licenses that are issued. That gives us a sense of our outdoor market penetration."

The company is also testing the waters for going into smaller markets or supplementing larger ones with a smaller store. Two cities -- Peoria, Ill., and Madison, Wis. -- operate 65,000-square-foot stores, smaller than the average Galyan's.

"Instead of two levels, these stores have one," Mang says. "They carry the same product lines but (with) less breadth and depth."

So far the stores are doing well, he says.

Mang feels that if Galyan's is successful in changing the consumer's perception that price is an issue at the chain, it will be smooth sailing.

Zickman agrees.

"Customers understand they can go to Galyan's for the best selection and service," she says. "But the perception is that they are high-priced. Our research shows on like items Galyan's prices are actually the same or lower. Galyan's needs to do a better job educating the customer."

How will it do that? Mang says the company prints its 110 percent price guarantee on all its marketing material and has it prominently displayed on signs throughout the store.

With 28 years of retail experience that includes department store management and a job as a supplier of product to stores, Mang is ready to meet the challenge.

"There's never a day when you don't have a challenge," he says. "In other industries, you have to wait months to receive numbers to know how you're doing. We receive a sales sheet every day.

"You have to learn to shuck and jive. The minute you think you have the consumer figured out, he changes his mind."

HOW TO REACH: Galyan's, (317) 532-0200 or www.galyans.com