Tennis sales appear to be rebounding somewhat, but industry retailers still have major concerns about their business.
By Peter Francesconi & Mary Helen Sprecher
Most retailers would agree that over the last 12 to 18 months, they’ve been beaten up pretty badly. When the economy took a nosedive, everything became harder. Suddenly, consumers cut their purchasing, manufacturers had excess inventory they had to move, prices dropped, retailer margins dropped, credit tightened, expenses such as insurance costs went up — it was a match that many retailers felt they couldn’t win. Some pro and specialty shops were forced to quit. Others cut personnel, cut hours, pared back inventory — anything to trim costs and be able to stay in the game.
Amid all this scrambling, many retailers were left wondering, if tennis participation rose 12 percent in 2009 to more than 30 million players, why weren’t they, too, realizing gains? In fact, they reasoned, why weren’t manufacturers in general making more headway?
As we reported in “Brand Management” in the April issue of RSI, which focused on the concerns of manufacturers, there is now a feeling that this industry may have weathered the worst of the economic storm. Inventory problems that plagued manufacturers appear to be clearing up, and racquet, ball and string sales at pro and specialty shops, while down overall for 2009, did turn up slightly in the fourth quarter. A slight drop in frequent players in 2009 remains a concern (and may be the biggest contributing factor to weak retail sales), but the larger base of players overall, combined with industry initiatives, is expected to help to push that frequent player number higher.
In the general economy, the fickle Consumer Confidence Index has been edging upward lately, and according to the National Retail Federation, the world’s largest retail trade association, retail sales in general are looking better. The NRF’s economic forecast projects overall retail sales for 2010 will increase 2.5 percent over last year.
“We continue to see signs of improvement throughout the U.S economy,” says NRF Chief Economist Rosalind Wells. “While we still expect shoppers to be frugal with their discretionary spending, retailers will soon be able to reap the benefits of leaner, smarter inventories and a year and a half of pent-up consumer demand.”
Another positive sign, according to the NRF, is that import cargo volume at the nation’s major retail container ports will be 25 percent higher during the first half of 2010 compared with the same period a year ago. “This is a dramatic turnaround,” says the NRF’s Jonathan Gold. “Increases in import volumes don’t correspond directly with dollar volumes in sales, but retailers are clearly expecting to move more merchandise this year.”
“The end of last year was the worst inventory position for retailers since 2002,” says Keith Storey, vice president of Sports Marketing Surveys, which does extensive research in the tennis industry and for other sports. “Since last year, I think retailers have been pretty savvy about what they’ve ordered in, so that should start to have a positive impact on inventory.”
While there appears to be some good news on the horizon as far as tennis sales, retailers still have major concerns and issues about the business. Many of their concerns overlap with those expressed by manufacturers, including how to deal with product inventory and closeouts, concerns of product life cycles, and, in particular, maintaining and enforcing Minimum Advertised Pricing policies.
Minimum Advertised Pricing, or MAP, is now common in the industry, and is even beginning to spread beyond racquets to other products. Ask any manufacturer, and they’ll most likely tell you they enforce their MAP policies. However, ask retailers and you get a different story.
“I am a strong advocate of MAP and I wish it were more prevalent, and I wish the manufacturers would enforce it,” says Jeff Rodefeld, director of retail operations at the Indianapolis Racquet Club. “I think enforcement is part of the problem. I don’t think everyone is consistent.”
Of course, when it comes to MAP policies, the larger retailers, particularly large internet retailers, come in for much criticism by smaller retailers. Large internet retailers, says Rodefeld are “eroding and dictating the market by not abiding by MAP. In my opinion, this is one of the most important concerns. It’s painful to see smaller competitors going out of business because they can’t compete any longer.”
Clearly, whether real or perceived, there is a disconnect. If retailers believe that manufacturers are not enforcing MAP policies, then the manufacturers either aren’t communicating effectively what measures they are taking against MAP violations or, worse, they’re letting enforcement slide. Either way, it appears, this ongoing — and because so many retailers think this is a problem, it’s fair to call it “chronic” — concern needs to be addressed.
In interviews with manufacturers, they do say they contact retail outlets that clearly are promoting product below MAP, but the brands are vague on what else may constitute violations of the policy. And outside of telling retailers to “stop it,” they’re also generally nonspecific about what other enforcement measures they take.
For retailers, it’s not just minimum “price” that makes up MAP. Offers such as free stringing with a racquet purchase, or free grips or bags or other gifts with purchase, are all ways that some retailers get around MAP pricing. “Free goods of any kind is a violation of MAP,” says Tony Taverna, who owns two Perfect Racquet retail stores in Connecticut. “And quoting prices over the phone that are below MAP needs to be enforced as a violation.”
“I just wish the average manufacturer would be a little stricter on what they’re putting on a MAP policy and how they’re reinforcing it,” adds Rodefeld.
“We usually end up being the police out there,” says Don Hightower, president of online retail giant Tennis Warehouse, at which many brick-and-mortar retailers direct their frustrations. “We often will make vendors aware of policy violations in the industry. Our philosophy is that if a policy exists, we take the high road, and it’s served us well.
“The way some online retailers may choose to circumvent MAP is to have one price on the website and another when the customer calls in,” Hightower continues. “And this has been a battle that we’ve been fighting for years. If there’s going to be a MAP policy, it needs to be enforced.”
Nearly all of the retailers we talked to — large and small — mentioned large internet retailers as a main source of competition and frustration, gobbling up product from manufacturers and able to undercut in price.
“The concern I have is that large internet retailers are important for the manufacturers, but at the same time they can destroy or hurt a brand because of pricing,” says Rodefeld. “For a small specialty store to match or compete with that, it may lead to them to have to price it at or below their cost. I think that’s why we’re seeing an erosion of specialty shops. It would be very difficult for pro shop or specialty retailers to make it unless they have some leverage to get their average cost lower.”
“The large e-tailers, as far as I see it, get first dibs,” says Chris Gaudreau of the Racquet Koop in New Haven, Conn. “They can buy as much as they want and they’ll get it. And because they’re so big, they can dictate policy.”
One solution that might help smaller retailers, says Gaudreau, is to combine with other shops to negotiate with manufacturers. “I go with three other shops, and I’m ready to back up any one of them. If one of us goes, we all go,” he says. “We may still be much smaller than some e-tailers, but the four of us can make a bigger statement. There’s strength in numbers.”
But some retailers mentioned a positive side to the internet competition. “Internet retailers like Tennis Warehouse do serve a purpose,” says Rodefeld. “We attempt to differentiate ourselves with service. The customer will go to an internet site to get information, and then come into our shop looking to make a purchase.”
“I’m the only tennis store in Richmond, so people are going to buy it here or buy it online,” says Ed Smith of Plaid Racquet in Richmond, Va. “We can guarantee the racquet — if it cracks and it’s not their fault, we’ll replace it; it’s very difficult to go through all that with an online retailer. And all my employees are tennis players and I try to bring in reps to talk to them about the newest technology. Personal knowledge of the game is still worth a lot. Someone will pay more to get that service.”
“People will at least look online at what’s out there and how much it costs before they come in,” says Kim Cashman of Advantage Yours in Clearwater, Fla. “The internet can be a good thing, but you do want them to come to you and buy. But it’s sales tax that hurts us. That’s really what it comes down to. We include the stringing, but for the most part if the racquet’s on MAP, we’re on the same price, they don’t charge much for shipping and it comes down to the tax. And people don’t want to spend extra.”
“The thing that’s disappointing to me,” says Mike Pratt, owner of MP Tennis in Tampa, Fla., “is that you start sensing that maybe [manufacturers] don’t want to do business with you anymore, like they want to go to all internet.
“I think probably what’s happening is tennis has sold its soul to the internet — and what loses is tennis,” he continues. “Locally, we run leagues, do lessons, promote the game — and we still lose. Those things don’t make us much money, but without us, you start seeing the domino effect. Internet can’t provide that. This business is more than just about computer screens.”
Margins of Victory, or Defeat?
For retailers, hand in hand with MAP policies are concerns over margins, inventory and discounting.
“What’s happened in the industry overall is that once a product is in your store, once it gets a little time to it and your customers have seen it, it’s not worth anything anymore,” says Pratt. “The companies are saying, ‘Hey, we have new stuff now; we can’t help you out with the old stuff.’ Not everything’s going to sell. They almost blackmail you with the discount thing. You have to re-prove yourself every January. You get stuck with product. They keep pushing the product even though it’s been discontinued. And it’s not one company doing this, it’s all of them.”
“What I really need is to make sure I’m not caught with old product,” adds Paul Davis, owner of Princeton Sports in Baltimore and Columbia, Md. “I need to turn my inventory. If I don’t sell a racquet before it’s a year old, I’ll be selling it for what I paid for it.
“I also need to fight for margins from the manufacturers,” Davis continues. “All the manufacturers are trying to work on a 40 percent margin after your discounts. A retailer can’t survive on 40 percent if they have to pay for shipping, stringing, the salesperson’s time, and all the other overhead. Bigger people are getting the manufacturers to bring down the margin by throwing free product at them, and the little ones are not surviving.”
Of course, it’s hard to talk about inventory without talking about the number of SKUs and product life cycles.
“There are way too may racquets and they’re changing way too quickly,” says Davis. “Manufacturers dump them or discontinue them too soon. That leaves customers thinking, ‘Why should I pay $250 when I can wait a year and pay $119?’”
Cashman agrees: “They have to come out with new reasons to get people excited, but there are just too many choices, too quick turnovers. You want to say to the manufacturers, ‘When you really don’t have a new technology in a year, don’t try to redo the entire line for marketing purposes.’”
“The shelf life on tennis racquets is nowhere near where it used to be,” adds Bruce Bell of Bell Racquet Sports in East Rochester, N.Y. “And unfortunately, it creates a mindset with the player — ‘If I wait it’ll come down in price.’”
“I think there are times when manufacturers make a new introduction on a string or a racquet and they don’t give it time to really take off,” says Brad Blume of Tennis Express in Houston. “I know they have to make sales numbers and grow their business. I just think sometimes there’s not the advertising dollars to make the new product successful. There are times when products seem to move to discontinue very quickly.”
Retailers also expressed concerns about minimum orders. “The amounts of racquets [manufacturers] are asking people to buy has gotten out of hand,” Cashman says. “If you don’t order that amount, you can’t make the margin, and that’s not fair. We know what our customers want. If I say I want to buy × number of racquets and they say you can get a better discount by buying five more, well, with all due respect, I don’t need those five more. I know what I can sell and I don’t want to be caught with more than I need.”
“With a lot of the programs,” Bell says, “you can get a real juicy discount, but you have to take on this new grip, this new bag if you want to be part of the program. That doesn’t sit well with me if I don’t like the product they’re trying to force us to buy. Sales should be a little more al a carte.”
Bell, Cashman and other retailers don’t like the idea of manufacturers forcing product on them. “A product that works in one market might not work in mine,” says Bell. “I’m committing to thousands of dollars worth of racquets, and you’re trying to commit me to $60 worth of grips because you think you know what my customers want? We’re the closest link to the consumer; we’re going to have the best idea of what our clients will like. For someone brand new starting out in the business it may be different, but for someone like me who’s been here since 1991, we deserve that respect.”
Other Retailer Concerns
Inventory and pricing issues have been so dominant recently that other retailer concerns sometimes get lost in the shuffle or pale in comparison. But retailers do have other things they need to deal with, including how to find good employees, which is a key to selling product and providing good service to customers.
“There are special challenges in tennis retail because you have to provide an extremely high level of service,” says Taverna. “Product knowledge, stringing consistency and technique, customization, talking to customers to really figure out what they want and need — you can’t just hire anybody to do that.”
For Taverna, he’s found that good customers often make the best employees — they’re involved in the sport and are interested in all the new products and their features. “There’s such a high turnover in products; you have to stay on top of the ever-changing models,” he says.
“I never had a hard time finding good employees, and I know that’s not the norm,” says Tiffany Grayson, who formerly owned Coach Matt’s tennis specialty stores in the Atlanta area, and most recently was hired by PGA Tour Superstores to oversee their tennis business. “For me, finding the right employees is all about creating a family atmosphere where people are excited to come to work. Generally, they are tennis players who want to be involved in another facet of the sport.”
Grayson, who at one point employed 22 people, says that in her experience, the key to good employees is to “put them on a pedestal. I would never ask them to do something I wouldn’t do myself. I catered to their needs and schedules when I could, I paid them for a job well done, and I was fair across the board.”
She closed her Coach Matt’s stores in January 2009 to devote more time to her family. (“As it turned out, I got out at the right time,” she says.) But she’s proud that “most of the people who worked for me still get together once a month for a ‘Coach Matt’s staff dinner.’ It’s part of the family.”
Dealing with ‘Shrinkage’
Yes, it’s a “Seinfeld” joke, but in retail, “shrinkage” is about shrinking inventory due to theft, inventory errors, etc. By some estimates, theft, by both customers and employees, costs U.S retailers more than $30 billion a year, and employee theft is one of the biggest threats that all retailers face.
“We’ve certainly had issues with all of that,” says Blume. “I think that’s a challenge for all retailers: employee shrink and shrink overall. As you grow bigger, employees may start to think, ‘Oh they’re rich, they owe me, I have stock in their company.’ I think we all have those problems.”
“Shoplifting is a potential issue for everyone,” says Rodefeld, “but because of the way our store is laid out, it really isn’t bad for us.”
Store layout does seem to play a big part in thwarting potential for losses due to theft. In the tennis business, maybe because we’re talking about generally smaller retail spaces, both shoplifting and employee theft don’t seem to be prevalent, at least with the retailers we contacted. “Our stores are laid out so that there’s really no area where you can disappear into,” says Taverna. “You can see someone from every area of the store.”
“I didn’t let my people stand behind the counter unless they were ringing someone up,” adds Grayson. “They would greet customers on the floor when they walked in and be available to them. I was very happy that our shrink was minimal.”
Websites, Marketing and Advertising
Despite complaints about internet retailing, brick-and-mortar tennis retailers know the value of having a website and of maintaining a database of customers. Their involvement in the internet runs the gamut, from a fairly static web presence, mainly for informational purposes (so that, for instance, a search of tennis in a particular area will pull up their store), to a full-bore site that includes regular customer emails, newsletters, online sales, and more.
“We’re updating our website right now,” says Gaudreau. “It’s important because when people Google ‘tennis’ and ‘New Haven,’ my shop comes up. We do believe we need a presence on the web.”
Blume’s Tennis Express is in a unique position, with both a successful retail location (it won RSI’s 2009 Pro/Specialty Retailer of the Year award) and a growing internet sales business. “We took risks to grow our business,” Blume says. “The internet is very, very challenging. The margins are much slimmer in apparel and footwear, so it isn’t just like you open a website and they will come. We’re super-committed to the web, but it is not as easy as some would think. Our margins on the web are lower because there are a lot lower prices, things that are not on MAP policy.
“If you’re going to have an internet business, you want to do it right,” he adds. “It takes great software, great images, buyer’s guides, it takes research and work. It’s not something that’s done easily.”
“Doing e-commerce is a totally different business model,” says Grayson. “At Coach Matt’s, we had a store website that was informational only.”
The Indianapolis Racquet Club’s website, says Rodefeld, is mainly for information, not e-commerce. But spending time maintaining it is key. “You need to find the right person to maintain a website and do it effectively,” he says.
“In today’s market, a store website is absolutely critical,” says Taverna. “Although we don’t sell a ton of stuff online, we do sell some things, and a lot of people find us online. But once you have a decent website, it’s a real challenge to keep it up to date.”
Many tennis retailers put having an internet presence into the same category as marketing and advertising, which certainly makes sense. And many say they’ve forsaken print ads in their local newspapers in favor of targeted emails to reach customers, and potential customers.
“I have an internet newsletter and a mailing list of about 2,800 people,” says Smith. “Maybe one out of a hundred people in my area are tennis players, so this is the best way to reach them. Newspaper advertising is costly and you don’t reach who you want to reach. I’ve encouraged all my employees to get customers’ e-mail addresses. I send out the newsletter, and I always have a coupon in it, along with new products and tennis tips. I’ve found that works a hundred times better than any other kind of advertising.”
Bell agrees: “We don’t do a lot of marketing — we have a website. I think we more rely on word of mouth. I’ve done my fair share of newspaper ads, and I don’t think it works as well for us. What we do is have a sign-up sheet for customers’ email, then we do e-mail blasts about things they’re interested in.”
Longevity helps, too. “We’ve been here for 19 years,” says Gaudreau, “so I don’t really need to do anything. At some point, it just runs on autopilot, although I do try to be visible at events in our area. If you do a good job, people will know about you.”
Community and charity events, says Grayson, are “invaluable” — both for visibility and for your own gratification. It’s takes planning, she says, and it’s a long-term payoff. Coach Matt’s was very involved in events in the Atlanta area, and Grayson says one of her objectives in her new role with PGA Tour Superstore is to develop grassroots relationships between communities and the 10 stores.
Are Pro Shops/Specialty Stores Dying?
Retailers and the industry as a whole are concerned about the survival of pro shops. While there are no hard numbers yet, the Tennis Industry Association is researching the number of pro/specialty shops that have been lost recently. “The TIA is still trying to quantify it so we can better understand the situation,” says Jon Muir, TIA president and the worldwide general manager of Wilson Racquet Sports. “There is a feeling that retailers have been closing.”
Retailers themselves worry that they may be a dying breed. “The problem with small stores is that you’re not buying volume to get your prices down,” says Rodefeld. “Rotation of merchandise is critically important. I think that’s what we’re looking at: pro shop as an endangered species.
“We’re fortunate in that we’re tied to a club that has 3,500 members. If you’re freestanding, trying to drive customers in, it’s difficult. I would not recommend anyone in today’s market open a freestanding shop.”
“People who love tennis think they can hang a shingle and say ‘Oh, I’m going to have a tennis store,’” Blume says. “Then they go do it and they find it’s a real flop. It’s extremely tough to launch a retail store in today’s market because you’d have to have a situation where you could control the amount of inventory for your growth.”
Grayson says that in today’s economy, “More of the mom and pop shops are figuring out they have to lean on their vendor reps and build that relationship. The reps can help them understand how the numbers apply to their business and can teach them to analyze their businesses to maximize profits.”
“From a Wilson perspective,” says Muir, “we try to be consultants to retailers. The more we can provide education and knowledge and service to retailers, it helps their businesses.”
Jolyn de Boer, the executive director of the TIA, says the association provides tools to help retailers in all aspects of their business. “TIA membership includes access to research reports to keep you up to date on what’s happening at retail and in the industry, and how your business compares to others,” she says. Also, the TIA has member benefits and services that include shipping discounts, merchant card services, insurance, including business liability and worker’s comp, advertising discounts and more.
“The TIA also is compiling a retailer guide that, coupled with the ‘Facility Manager’s Manual’ already available free on GrowingTennis.com, will provide valuable insight into successfully running a business,” de Boer says. TennisConnect is another TIA product to help retailers run their business, she adds. It helps retailers to connect with customers, track stringing and demos, run promotions, and more, and this year will add QuickBooks and Point of Sale integration.
Opportunities and Challenges
In some sense, the challenges the tennis retail business faces also creates opportunities. The difficult economy and retail in general are “bringing out the creativity in all of us,” says Grayson. “I think we’re probably going to have smarter manufacturers and retailers, who are running their businesses more efficiently.”
“Nowadays, you can’t wait for the consumer to come to you,” says Rodefeld. “Too many retailers wait for the customer to come in. We’re going to go out after that customer, drive business back in here.”
“We need to educate consumers more,” says Blume, on everything from the need to restring, to when to buy a new pair of shoes, to when to buy a new racquet or the type of racquet that’s best for a player. “And I think manufacturers need to educate players on game-improvement racquets; the right racquet for you isn’t necessarily the one that Agassi uses.”
Successful tennis retailing today, says Taverna, “is not like it was 15 or 20 years ago. You have to have everything in place: superior service, competitive prices, a decent website, marketing and advertising, knowledgeable employees, ways to combat all types of competition … you have to do everything extremely well.”
“All in all, things do seem to be turning upward,” Grayson says. “I think the people who can see past today, and still have hope for the future, they’ll be the ones to grow their businesses.”
This is the second in a series of articles about the tennis industry’s changing landscape. Future topics will deal with teaching pros, participation, court construction, pro tennis and more. We’d like to hear your comments and concerns, too. Email them to email@example.com. Please put “state of the industry” in the subject line.