Chapter 4. Case Study 4.8 Dicks Sporting Goods: Taking control of its E-commerce Operations, pages 247 250. Answer questions 1, 2, 3, and 4 on page 250. Clearly cite all the sources.
1. Why did Dicks decide to leave eBay and take over its own e-commerce operations?
2. What is Dicks omnichannel strategy?
3. What are the three steps in Dicks migration to its new website?
4. What are the primary benefits of Dicks new system?
Founded in 1948 by Dick Stack in Binghamton, New York, Dicks Sporting Goods has grown from a small local business selling fishing and camping supplies into a Fortune 500 business with stores throughout the United States. After Stacks retirement in 1984, his son Edward bought the business with his siblings
and took over as president. Edward spearheaded the companys growth from a handful of local stores into a sporting goods powerhouse. The company sells athletic apparel, outerwear, sportswear, a variety of shoes, fitness equipment, and outdoor equipment. Now headquartered in Pennsylvania, Dicks also runs two smaller franchises: its Field & Stream outdoor goods division, and Golf Galaxy for golfing supplies. Dicks prides itself on combining small-business customer service with big-box retailer selection and values, and routinely outperforms competitors in customer service metrics such as phone and e-mail response time and delivery speed.
Unlike some of its competitors, Dicks was quick to embrace the online channel and has maintained very strong e-commerce sales relative to its competitors in the sport-ing goods industry. Dicks increased its e-commerce revenue by 40% from 2010 to 2015, whereas its competitors revenues increased by only 20% over that span. For most of that period, Dicks relied on external vendors for its IT and e-commerce needs. EBay handled Dicks back-end fulfillment processes and most aspects of their e-commerce presence for approximately 10 successful years. However, by 2015, Dicks had grown to a size where its agreement with eBay was costing the company significant revenue. eBay collected a fixed commission on all items Dicks sold online, no matter how big, despite the fact that expensive items cost no more for eBay to process than cheaper ones. As Dicks e-commerce sales continued to grow, its deal with eBay was costing it more and more money. Many bigger businesses have begun migrating their e-commerce operations away from external vendors and back within the control of the company to avoid these types of expenses. Also, it can be difficult to customize pre-made software and services from external vendors. However, once in-house, companies can more easily differentiate their web presences from competitors and adjust their software and services to best suit their capabilities. Companies that reclaim their e-commerce operations also maintain easier access to their proprietary customer data. Examples of companies following this path include Target, which left Amazon Web Services to build its own e-commerce platform, and Toys R Us, who had also used eBay Enterprise, like Dicks. Facing pressure to slow down physical growth and reduce the high cost of maintain-ing physical real estate, and sensing the trend towards e-commerce at the expense of in-store sales, Dicks made the difficult decision to follow suit and formulate a plan to take over its own e-commerce operations by 2017. The companys rapidly increasing online sales gave Dicks both the incentive and the budget to undertake the transition. Edward Stack explained that the money the company was going to recoup from no longer paying transaction commissions to eBay would pay for the temporary increase in expenditure required to build and maintain an e-commerce infrastructure. Stack estimated that the company stood to immediately save between $20 and $25 million per year, and with a total expenditure relating to the switch of about $80 million, the move would pay for itself within four years. Having control of its e-commerce operations allows Dicks to provide better support for unique omnichannel features, such as shipping online orders from physical Dicks stores. To that end, Dicks has also made plans to convert its stores into distribution centers as well as traditional retail showrooms. This will increase efficiency and improve deliv-ery times, turning its perceived weakness of excessive bricks-and-mortar infrastructure into a strength. Approximately 80% of Dicks e-commerce orders are shipped within the geographical area of a physical store. Dicks foresees its stores functioning not only as traditional retail showcases, but also as miniature distribution centers. In addition, cus-tomers can order online and pickup orders at local stores. Customizing its infrastructure and website capabilities to capitalize on this unusual arrangement was one of the reasons it wanted to reclaim operation of its e-commerce platform. To carry out this strategy, Dicks began development of its e-commerce platform and integrating its existing systems in 2014. In 2015, Dicks began moving two of its lesser brands, Field & Stream and Golf Galaxy, onto the platform to ensure that there were no major issues with it, and continued development work. In 2017, the company plans to re-launch its flagship Dicks Sporting Goods site on the platform. Dicks selected IBM Websphere Commerce Suite for its e-commerce technology stack
because of its emphasis on omnichannel shopping and fulfillment capability. Core com-ponents of the stack also include Apache ServiceMix service-oriented architecture, Man-hattan Associates Order Management System for supply chain management, JDA Software Group software for merchandising, allocation, and replenishment, Oracle PeopleSoft for human resource management, IBM hardware, and Cisco networking technology. Manhat-tan Associates runs Dicks four Pittsburgh distribution centers, and JDA Software Group data is directed into a data warehouse that allows Dicks to access real-time information from any area of their business. Specific features of the new e-commerce platform that Dicks has prioritized include
the ability to buy online and pick up items at a store, the ability to ship from or to a store, and its associate ordering system. The platform also features the ability to break down and test different pricing and marketing approaches by region, an improved search function, and better analytics capabilities. Dicks has found that e-commerce sales double in regions where it opens new stores, and that multichannel customers spend three times as much as single-channel customers. Thats why Dicks has focused so much on integrating physical and virtual sales and omnichannel features. Bringing all of its e-commerce infrastructure in house also gives the company better control over development cycles and speeds up its testing and implementation time frames. Dicks has also used the mobile platform to drive brand loyalty. Dicks uses piloting beacons, or physical sensors in stores that respond to incoming customers smartphones, to produce customers company rewards cards as they approach the store, offering promotions and other customized deals. The company has also integrated its own mobile app with popular fitness trackers like FitBit and MapMyRun to encourage its customers to live a healthy lifestyle, awarding rewards card points for consistent physical activity. The process wasnt without risk. Installing a completely new e-commerce platform
is no easy task. It involves integrating legacy systems and new systems without losing access to information, hiring a slew of new employees to manage the system, and avoid-ing implementation delays, cost overruns, outages, and other delays. Shifting much of its focus to the lower-margin online channel with extremely experienced competitors like Amazon lurking is also a challenge. Dicks has capitalized on the failures of its competi-tors, acquiring 30 Sports Authority leases at a steep discount after its bankruptcy, as well as all of the assets of GolfSmith after it went out of business as well. Dicks also acquired the intellectual property of both franchises, which will help it learn more about the customers of its former competitors. In 2017, Dicks has continued its strong e-commerce growth, which it believes will
allow it to avoid a similar fate. While the bankruptcies of Sports Authority, GolfSmith, and other bricks-and-mortar franchises may cause problems in the short term for Dicks, which cant compete with the prices of companies that are liquidating their inventories, they have also given Dicks more market share. In 2016, e-commerce accounted for 11.9% of Dicks sales for the full year, or approximately $942.7 million, and 17.9% of its sales for the fourth quarter, representing a gain of 27% from its e-commerce sales in the fourth quarter of 2015. Although some analysts are concerned that Dicks will eventually suffer the same fate as many of its competitors in the face of competition from Amazon, others believe that Dicks has done more than enough to bolster its e-commerce presence to remain viable going forward. The companys overall sales have continued to increase and are on track to exceed $8 billion in 2017, and Dicks also plans to fully complete its e-commerce overhaul by the end of the year.