Sporting Goods Logistics: Keeping the Ball Rolling
Athletic equipment distributors and retailers use supply chain management to avoid stockouts, manage seasonal peaks, and stay in the game.
Rules of the Sporting Goods Game
To win MVP in sporting goods logistics, shippers must train all year to handle seasonal peaks. As spring arrives, demand for baseball equipment soars; in fall, soccer gear is all the rage. This seasonality translates to broad consumer and retail demand fluctuations throughout the year.
"Retailers begin building up manufacturers’ stock as each sports season approaches," says John McKenna, president of McKenna Logistics, a Canada-based third-party logistics (3PL) provider that handles athletic products ranging from bikes and snowboards to hockey and baseball equipment. "Then, at a certain point in the season, they suddenly stop. Before long, they are on to the next season’s product, and previously high-demand products are sold for peanuts. Those variables create a wild dynamic."
The sporting goods industry’s primary challenge is planning and forecasting to ensure enough inventory to meet demand, without holding too many products. Success requires understanding—and managing—the ebb and flow of market demand. It also requires knowing the best channels for products, how to work with retailers and suppliers for the most efficient results, and how to handle product order patterns, delivery schedules, inventory turns, and receipts.
Making a Game Plan
"Retailers have to know how to plan appropriately," says Kasia Wenker, director of distribution sales for ITS Logistics, a Sparks, Nev.-based 3PL. "For example, most people shop for sporting goods on the weekend. So we might process 10,000 orders on Monday and none on Friday. We have to ensure we have the resources to support that workflow."
Demand variances mean warehousing and storage space considerations also come into play. "Full visibility is essential," says Wenker. "What shipments are in transit? What products are in the warehouse? Retailers can’t afford to carry too much stock, because next season an item will be out of style and demand will be minimal. They also can’t afford to hold too little inventory, because demand will rise and they will miss out on sales."
Weather correlates with seasonality, and can dramatically affect demand. "A few years ago, spring arrived early and bikes started selling in March, instead of later in the year as usual," says McKenna. "Those kinds of unexpected changes mean we have to be dynamic with labor, and our walls have to be elastic to handle sudden product influxes."
The majority of sporting goods products are manufactured in China or Taiwan, then shipped to the United States or Canada via ocean. Industry organizations, such as the Sporting Goods Shippers Association (SGSA), support shippers in arranging these product moves. A nonprofit group that evolved from working solely with the bicycle industry, SGSA provides dedicated services for exercise equipment and sporting goods importers and distributors. Its main function is negotiating ocean freight rates and contracts with steamship carriers on behalf of shippers.
Most sporting goods logistics companies employ a variety of distribution channels, including big box, regional, specialty, mom and pop, and e-commerce. "To fulfill all those channels promptly requires technology and flexibility, because they all vary dramatically in size and requirements," says Wenker.
For example, big box chains such as The Sports Authority enforce strict labeling requirements. Incorrect labeling may result in chargebacks, which emphasizes the importance of automation and infrastructure support.
Along with labeling, many retailers are scaling up the use of RFID tracking. "As the cost of RFID tags falls, sporting goods retailers are increasing their investment in them, particularly for high-value products such as skis and snowboards," says McKenna. "RFID not only helps control inventory in the store, but it also provides detailed tracking and the ability to know the location of any product at any time."
Tracking tools can also help manage quality issues. Companies that introduce new high-value products often require individual units to be tracked through the supply chain, adding complexity.
"Scanning the tracking number of each individual unit requires a lot of labor, as well as technology," says Wenker. "But if a defect is uncovered, tracking makes the recall much easier to manage."
New product introductions pose another challenge to the sporting goods industry. Constant design evolution and technology advances mean new sporting goods are introduced continually. Often, new products look very similar to old products. Companies must take steps to ensure last year’s models are not shipped accidentally.
New products are also often subject to manufacturing delays. "Sometimes a new product comes to us already late, and it’s urgent that we get it into the stores for the opening of the season," says Wenker. "We need labor flexibility to manage those situations, and to ship to our retail customers as soon as possible."
On the supplier side, keeping up with customer demand for faster delivery times is one of the most significant challenges the sporting goods vertical faces.
"Today’s consumers expect fantastic service, including fast and accurate shipping," Wenker says. "They are enthusiasts who want to start using their new equipment tomorrow."
McKenna concurs. "Customers want their items almost immediately after they place an order," he says. "Therefore, the supply chain has to work faster than ever. Containers come in, and we have to ship those products the next day—or even that afternoon.
"The variability in shipments from Asia makes it a wild ride," McKenna continues. "Retailers have little tolerance for variability, so, as their service provider, we have to try to eliminate it."
Sporting goods shippers strive to strike a balance between keeping adequate stock on hand to ensure fast delivery without having too much on hand in case demand is weaker than expected.
"Retailers don’t want to get stuck with old inventory, particularly seasonal equipment, and have to sell it later for pennies on the dollar," says McKenna. "That’s the number-one challenge in sporting goods. Fortunately, shippers are becoming more creative in trying to avoid that."
For example, as a season winds down, retailers may taper their inventory, but work with manufacturers to ensure orders that come in can be filled quickly in case a stockout occurs. Manufacturers may either place inventory close to the retailer or arrange for a fast shipping option. Occasionally, a manufacturer will consign the inventory to the retailer, or the retailer will strike a deal to pay the manufacturer only when a product actually sells.
Ritchey Design: On a Roll
Ritchey Design is one company taking a creative approach to seasonality. The Sparks, Nev.-based firm designs, sells, and markets high-end bicycle components for both road and mountain bikes. Manufacturers based in Taiwan produce the components, and the company uses a multi-channel distribution model that includes retail bike shops, distributors, online national accounts, and grassroots teams.
"Our products’ peak season seems to start earlier each year," says Sean Coffey, global director of marketing, Ritchey Design. "But weather exceptions affect whether inventory stacks up, or moves slower or faster. Planning and execution in Taiwan plays a key role; so does having a well-established mode for getting products to market."
Until recently, Ritchey faced challenges running its in-house distribution operation, with fluctuating volume, space, and labor requirements. It also struggled with rising warehousing costs, inefficient inventory management and multi-channel distribution, technology compliance with distributors, and logistics standards compliance with distributors.
The company began working with ITS Logistics to better manage some of these issues. The solution ITS designed for Ritchey includes flexible, on-demand space and labor; RFID operations; and systems integration, which provides seamless information flow and live visibility to all inbound and outbound transactions for orders to all account types. The solution also accommodated different product flows for various customer payment methods, and same-day shipping with customer options on carrier and delivery transit days.
"Technology plays a big part in the ability to compete effectively and get product delivered fast, while reducing errors," says Coffey. "We realized we needed to improve our use of technology to meet growing customer demands for fast delivery."
Following the new solution implementation, Ritchey Design quickly moved to the top tier of accounts on the Quality Bicycle Products suppliers scorecard, which evaluates sales volume, gross margin percent earned, inventory turns, order fill rate, and inbound errors.
Within the past two years, the company also added two warehouse locations—one in the eastern United States and one in the west—allowing it to provide faster delivery.
"The new locations have changed how we operate," says John Frechette, COO of Ritchey Design. "Independent bike shops may now get products quicker from the distributor, so they are less inclined to carry inventory at the shop. When they worry less about stock, we don’t get as many preorders."
Retail Perspective: Steed Cycles
One such independent bike shop is Steed Cycles, a North Vancouver, B.C., retailer specializing in road, mountain, hybrid, and cyclocross performance bikes. In 1997, at the age of 24, owner Kim Steed opened the shop with $3,000, and within four years developed it into a business generating $1 million in annual sales.
For Steed, the bike industry’s challenges include customer service consistency, product shelf life, and the Internet and social media’s influence on consumers.
"Realistically, technology makes little big-picture difference in bicycle performance," Steed says. "But with the Internet, the inventory we bought last week is not worth the tag’s price if a pivot point changed or a carbon fiber link was implemented.
"Marketing hype works," he notes. "We see it every day in Facebook posts and bike forums, and hear it on the sales floor when customers come in with requests."
From a logistics standpoint, inventory management is key to coping with seasonality.
"We have a specific season to our business, escalating in March through to September, followed by a severe drop in winter," says Steed.
He places orders an average of four to five months in advance. "Most suppliers expect us to take delivery of product as soon as they receive orders from the manufacturer. We then initiate payment on the product before the season even starts," Steed explains. "Pressure to increase these yearly pre-season orders is intense, and sometimes pushes retailers to overextend themselves financially. The cost required to operate a store with these demands isn’t sustainable long term, especially in the current economy."
Steed strives to be conservative with pre-season orders, and resists the pressure to grow his purchases year to year. He stocks up on bikes he knows will sell for most of the season, and prepares them at an off-site warehouse.
Depending on the product, Steed stocks 20 percent to 60 percent of the previous year’s sell for parts, accessories, and clothing; and 50 percent to 70 percent of bikes and frames. "Some suppliers allow multiple ship dates for our pre-season order; some even allow us to cancel with no penalty if we don’t need the product when the ship date arrives," he says.
Some suppliers are coordinating with other countries for the same products. If a Canadian supplier is sold out, for example, it doesn’t lose the sale—it passes the order to the U.S. warehouse. "With this platform, the customer, dealer, supplier, and manufacturer all win," Steed says.
Online sales of bike parts and accessories at drastically reduced retail prices pose a challenge for Steed Cycles. "Sometimes the retail price online is less than our landed cost," Steed notes. "For many customers, price is more important than service, and we lose that fight pretty quick."
The Value of Service
Because online dealers offer little to no post-purchase service, manufacturers are inundated with issues that brick-and-mortar dealers would normally handle. As a result, some manufacturers crack down on online bike part dealers, forcing them to list their prices no lower than a certain percentage of the manufacturer’s suggested retail price.
"The price would still be less than my retail, but only by 10 to 15 percent," says Steed. "Failure to list prices within this markup range costs the online retailers the manufacturers’ account."
Customers may be willing to pay for the promise of service. "Our parts and accessories sales have dropped approximately five percent each year over the past decade, but our bike sales and service shop numbers have almost doubled," Steed notes.
Shoppers such as Steed Cycles’ customers reflect society’s increasing health and fitness consciousness—a trend that is keeping the sporting goods industry in good shape. Despite seasonality challenges, proper supply chain management ensures the sporting goods vertical will continue to be a winner.
Rules of the Sporting Goods Game
Sporting goods shippers and their logistics service providers can set themselves up for a win by following these guidelines:
Sporting goods are subject to consumer customization needs. To manage these demands, and avoid getting stuck with a product that cannot be sold, postpone final product customization until just before the item is ordered.
Integrate inventory data with point-of-sale (POS) systems. Live POS integration helps provide accurate inventory management and forecasting, and can minimize stockouts. “The second a consumer buys a shoe, the manufacturer gets an alert so it can replenish that item,” explains Kasia Wenker, ITS Logistics. “Knowing what items have sold, and immediately replenishing that inventory, ensures retailers have the right products on hand to meet customer demand.”
For large retail chains, it is important to monitor chargebacks and the scorecard that goes along with the charges. If a company does not have the internal resources to manage the scorecard, and correct any shipping mistakes, retail distribution can be costly—up to 10 percent of total order costs. Even worse, non-compliance can potentially result in a retailer dropping a supplier.
As a season ends, retailers order less and less to prepare for new product introductions. Working with a third-party logistics provider may offer opportunities to consolidate inbound as well as outbound shipments.