Galyan’s Trading Company, Inc.

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Galyan’s Trading Company, Inc.

2437 East Main Street
Plainfield, Indiana 46168
U.S.A.
Telephone: (317) 532-0200
Fax: (317) 532-0250
Web site: http//www.galyans.com

Public Company
Incorporated: 1946
Employees: 4,500
Sales: $482.5 million (2002)
Stock Exchanges: NASDAQ
Ticker Symbol: GLYN
NAIC: 451110 Sporting Goods Stores

Galyan’s Trading Company, Inc. is an expanding chain of innovative sporting goods stores specializing in huge, splashy retail spaces. Stores include such activity areas as putting greens and indoor climbing walls, making Galyan’s a leader in so-called retail-tainment, where the shopping experience is made into something of an adventure. Galyan’s operates several dozen stores in the Midwest, upstate New York, Georgia, Texas, and Utah, with plans for rapid rollout of more stores in urban markets across the country. The stores sell a variety of major brand-name clothing and sports gear, outdoor equipment, and athletic shoes, plus some of its own Galyan’s branded goods. Retailing giant The Limited bought the company in 1995, then sold most of Galyan’s to a private investment firm. Galyan’s shares are now traded on the NASDAQ. The Limited retains more than 20 percent of the company, and an additional 30 percent is owned by Freeman Spogli & Co.

Expanding a Family Business in the 1980s and Early 1990s

Galyan’s Trading Company began as a single store founded in Indianapolis in 1946 by Albert Galyan and his wife, Naomi. Galyan’s was originally a grocery that also sold hunting and fishing supplies. Gradually it evolved into a small, successful sporting goods store. Albert Galyan died in 1975, and management of the business passed to his son Pat Galyan.

In 1978, Pat Galyan and his wife bought the store outright from Naomi Galyan. Pat Galyan managed the business for six years before deciding to expand. The second Galyan’s store opened in the Indianapolis area in 1983. Over the next decade, the chain expanded to four stores in Indiana. These were about 37,000 square feet each and sold a full array of sporting goods. The chain dominated the central Indiana market. Sales for the company in the early 1990s were estimated at around $15 million.

In 1993 the company announced plans to build a fifth store, in Columbus, Ohio. But this one was to be quite different from its predecessors. The Columbus store was sited between two large-format regional retailers, Kohl’s and Meijer’s, and it was almost twice as big as the other Galyan’s, at 75,000 square feet. The new store was built on two levels and offered a complete line of sporting goods, from skis to canoes, as well as athletic shoes and apparel. It featured a modern design, with a glass façade and an open atrium decorated with an enormous steel tree, and it offered its customers a chance to climb on its 42-foot indoor climbing wall. Outside, the store had another 40,000 square feet for a full-sized volleyball court, basketball court, golf practice area, batting cages, and a running track. An additional 8,000 square feet was set aside for boating equipment. The store was huge, and it employed 150 to 200 people. The Columbus store was a breakthrough in sporting goods retailing. No one had put together such a theatrical retail space in sporting goods before. The new store was more than a flagship. Pat Galyan announced that it was a prototype for the rest of the chain, which he planned to expand. In an interview with Sporting Goods Business (September 1995), Galyan explained that in wanting to grow his company, he was stuck competing with so-called “big box” stores such as Sports Authority. What he decided to do was “design the ultimate category killer killer.” In other words, he outdid even the mega-stores by being not only large, but adding the sense of adventure and fun with the attractive architecture and onsite sports areas. Galyan’s also claimed to be more than a sporting goods store. Pat Galyan called his retail outlets “sports stores” and claimed to have a broader understanding of the sporting lifestyle and sport fashions than other retailers. “It’s not just jocks and socks and hunting and fishing,” he said.

With The Limited in the 1990s

After the Columbus store made its mark, Galyan’s also retrofitted some of its Indiana stores and built one more, bringing the chain to six by 1995. Galyan’s called itself “The World’s Coolest Sports Store” and showed an impressive retail flair. Pat Galyan seemed to have a wide view of the sports market as he made plans to keep the chain growing. He wanted to make sure his stores provided for women customers, something he thought few of his competitors emphasized enough. In both the store design and in its apparel offerings, Galyan’s intended to stand out as a retailer that would cater to women in the sports market. Galyan also hoped to attract aging customers, particularly with the sale of exercise equipment. He believed that the aging baby boom generation would find itself with more time and money to spend on sports and exercise and would buy at-home fitness equipment. Although the chain was still small, it already was thinking of a national market.

By 1994, Galyan’s sales had grown substantially, to $52 million, up from $15 million just a few years earlier. Even so, the company did not have the funds to expand nationally by itself. In 1995 The Limited Inc. bought Galyan’s for $32 million. The Limited operated almost 5,000 stores and had sales in 1994 of more than $7 billion. It ran its namesake The Limited stores, a mall stalwart, as well as Abercrombie & Fitch, Express, the lingerie chain Victoria’s Secret, and Bath & Body Works. The company had longstanding experience in developing retail niches, although sporting goods was a departure for it. The Limited’s chairman, Leslie Wexner, was enthusiastic about Galyan’s and saw the chain becoming a market leader soon. The Limited announced that it would build as many as 50 new stores by 2000, bringing sales up to possibly $500 million. Pat Galyan would stay on as CEO of the chain, which was to remain headquartered in Indiana. Galyan claimed to be ecstatic about the deal, which partnered his company with one of the most knowledgeable retailers in the country.

Over the next two years, Galyan’s opened two stores in Minneapolis-St. Paul and another in Kansas City. The new stores were from 80,000 to 100,000 square feet and continued the Galyan’s theme of hands-on displays and tryout areas and dynamic, theatrical design. By 1996, sales had already doubled from two years earlier, to $108 million. But in 1997 Pat Galyan abruptly left his post as CEO, claiming that he wished to retire at the age of 47 to spend more time with his family. The Limited claimed that there were no financial problems at Galyan’s, that in fact the stores pulled in $300 per square foot, and led the market for sporting goods in every market the stores entered. But clearly the expansion of the chain had not gone as quickly as had first been estimated.

The company’s new CEO was Joel Silverman. Silverman had an extensive background in retailing, having worked at Federated Stores and then run three different divisions of The Limited. He had a longstanding interest in sporting goods and was extremely enthusiastic about Galyan’s. He instituted changes to give Galyan’s a better management infrastructure, making each store more consistent with its partners in the chain, overhauling the budget and merchandising planning processes, and in general setting up the chain to operate on a national scale even though it was still small.

Nevertheless, there were several barriers to the quick expansion that The Limited had first envisioned for Galyan’s. One was that the stores were very large, and working out the real estate deals to build them was complicated and sometimes slow moving. Mall stores including Victoria’s Secret were generally quicker and easier to open than something as architecturally unique as Galyan’s. By 1998, the chain had moved to a couple malls, and the company did not rule out more mall expansion rather than stand-alone units. Silverman claimed in an interview with Sporting Goods Business (August 10, 1998) that he was willing to wait before entering a new market, in order to make sure the real estate the company bought was “A-plus. We don’t settle for anything less than the best.” Staffing new stores was also perhaps more of a problem at Galyan’s than at other chains The Limited ran. Galyan’s wanted employees who were knowledgeable sports enthusiasts. It needed some 200 people for each new store. Silverman acknowledged that it might be difficult to attract enough suitable personnel when the chain started opening more stores, more quickly. Galyan’s also was moving slower than predicted in bringing out its own brand. By 1998, only about 6 percent of the business was in Galyan’s private-label goods. Most of this was in casual apparel. The company hoped to introduce more private-label goods, but was waiting to see what niches its major brand vendors neglected, to see where the best opportunity might be. Thus the chain was nowhere near opening the 50 new stores it had planned. In 1998 Silverman revised the growth scenario to predict that Galyan’s would have close to 20 stores by the end of the century. But Silverman also averred that the chain could grow to a $2 billion business, and within only 15 years. Galyan’s ended 1998 with sales of $220 million.

Company Perspectives:

Galyan’s exists and thrives because we’re passionate about sports, the outdoors and getting the most out of life. Towards that end, we offer the best merchandise from top brands, such as adidas, The North Face, Patagonia, Timberland, Woolrich and many more. Plus, we staff our stores with people who stay actively involved in sports and the outdoors and they’re eager to help you look and perform your best.

Continued Growth and an Initial Public Offering

In mid-1999, Galyan’s had expanded to 18 stores, and The Limited sold 60 percent of its interest in the chain to a private investment firm called Freeman Spogli & Co. The Limited made approximately $190 million on the sale. The growth of the chain continued. The company opened a 170,000-square-foot store in the Chicago area as well as its third store in the Atlanta area. New stores were also underway in Buffalo, Denver, Detroit, and Grand Rapids, Michigan. CEO Silverman claimed that Galyan’s was doing better financially than most of its competitors, some of whom were seeing declining sales and closing underperforming units. Not only was Galyan’s’ revenue growing because of its new stores, but sales at stores open at least a year (a key measure of retail performance) also were growing at around 10 percent. In addition, Silverman announced that Galyan’s would probably go public soon, when it had opened about 30 stores.

The company continued to do well, with another 10 percent gain in sales at stores open at least a year recorded for 2000. The company began selling its stock on the NASDAQ in 2001. The initial public offering raised about $115 million for the chain, which was to be used to pay down debt and to fund further expansion. The stock sale left The Limited with about 22 percent of Galyan’s, and Freeman Spogli with another 30 percent. The chain opened more stores in urban markets across the country. It opened a store in Piano, Texas, in 2001, followed by others in Rochester, New York, and in Salt Lake City. By mid-2002, Galyan’s had 26 stores in 16 states.

Principal Competitors

The Sports Authority, Inc.; Foot Locker, Inc.; Gait Sports Company; Recreational Equipment, Inc.

Key Dates:

1946:: Albert and Naomi Galyan open their first store.
1975:: Albert Galyan dies; son Pat begins to run the store.
1978:: Pat Galyan buys the store from his mother.
1983:: The chain begins to expand.
1994:: A huge new Galyan’s design premieres in Columbus, Ohio.
1995:: The Limited buys the six-store chain.
1997:: Pat Galyan retires.
1999:: The Limited sells its stake in the chain to investment firm Freeman Spogli.
2001:: The company begins selling its stock with its initial public offering on the NASDAQ.