Sports Authority Files for Chapter 11, Plans to Sell or Close About 140 Stores

Englewood, Colo. — Facing stiff competition on the retail playing field, particularly online, Englewood-based Sports Authority Inc. announced today that it has filed for Chapter 11 bankruptcy protection.

The company plans to sell or close about 140 stores, or nearly one-third of its locations.  The store closing process is expected to take up to three months.

“We are taking this action so that we can continue to adapt our business to meet the changing dynamics in the retail industry,” said Michael Foss, CEO of Sports Authority, in a press release. “We intend to use the Chapter 11 process to streamline and strengthen our business, both operationally and financially, so that we have the financial flexibility to continue to make necessary investments in our operations.”

The decision follows a comprehensive review of the Sports Authority portfolio in light of the increasing amount of shopping that is occurring online, the company stated. “As a result of these changes in consumer buying patterns, Sports Authority determined that it needs fewer stores as part of its long-term business model,” according to the press release.

All Sports Authority stores nationwide remain open at this point and continue to operate on normal schedules, the company emphasized.

In a related move, Sports Authority has hired A&G Realty Partners to dispose of 87 leases and assist the company in reducing its occupancy costs as part of the bankruptcy process.

“The real estate is in some very prestigious markets around the country, and we will be conducting an auction on or about the middle of April,” says Andy Graiser, co-president of Melville, N.Y.-based A&G Realty Partners. “We are accepting bids.”

Sports Authority is exiting Texas, according to Graiser, and plenty of “good locations” are available in California, Florida, Puerto Rico and the Lone Star State.

Filing Was Expected

Sports Authority neglected a $20 million coupon payment on Jan. 15, resulting in a 30-day grace period to determine a possible settlement with creditors, during which time the company failed to make a payment.

According to Reuters, the sporting goods retailer has been working on an agreement with creditors for a loan to get the company through bankruptcy and line up liquidators for the 150 to 200 stores it plans to close.

Sports Authority has reportedly struggled to make payments to suppliers of golf clubs, sneakers and other sporting apparel available in stores. Some of these suppliers are said to have been requesting cash upfront out of fear that they will not be paid back.

Bloomberg News has reported that Sports Authority is in talks with Pittsburgh-based rival chain Dick’s (NYSE: DKS), as well as other parties, regarding the sale of stores and intellectual property.

“The sporting goods industry has been consolidating for a while, and Sports Authority has not been very well run for a long time,” says Nick Egelanian, president of SiteWorks Retail Real Estate Services.

“It has shown the signs of a troubled retailer for a long time in an environment where you have Dick’s Sporting Goods opening 60 or 70 stores a year, so you basically have a better retailer taking market share from a lesser market retailer,” adds Egelanian.

Jerry Hoffman, president of Hoffman Strategy Group, agrees that Sports Authority’s troubles are likely caused by an inability to compete.

“From my view, this is an example of a retailer who tries to compete on price where the profit margins are pretty thin,” says Hoffman. “They’ve begun to lose out to competitors like Dick’s Sporting Goods, which is really the emerging dominant player in the sports retail market.”

The closing of Sports Authority locations across the country could be a good opportunity for other retailers, according to Jeff Kuchman, principal and director of tenant representation at Mid-America Real Estate Corp.

“If you’re viewing the potential bankruptcy within the context of the rest of the economy, it would actually be somewhat welcome in the sense that there are a number of candidates for the spaces in question,” says Kuchman.

“Sports Authority occupies a number of very good, well situated locations. Speaking specifically about Chicago, there are a great deal of mid-size boxes that would covet the real estate. ”

Egelanian agrees that the closing of Sports Authority locations could lend great opportunities to other retailers expanding in the market.

“In the case of Sports Authority, they occupy a position in the business where most of their real estate is fairly sought after,” says Egelanian. “At the same time as you have Sports Authority possibly closing stores, you have the combined effort of the apparel industry, which is growing really rapidly, and Dick’s Sporting Goods, which is growing really rapidly.”

“I think that the growth of retailers like Ross Stores, Marshalls, TJ Maxx and Nordstrom Rack alone — which are opening at a combined rate of 250 locations per year — would eat up Sports Authority’s closed stores in a little over a year or a year and a half,” continues Egelanian.

A group led by Leonard Green & Partners LP acquired Sports Authority Inc. for $1.3 billion in 2006.

Katie Sloan

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