Sports & Recreation, Inc.

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Sports & Recreation, Inc.

4701 West Hillsborough Avenue
Tampa, Florida 33614
U.S.A.
(813) 886-9688
Fax: (813) 886-9001

Public Company
Incorporated: 1988 as SRI Holdings, Inc.
Employees: 5, 900
Sales: $525.7 million (1995)
Stock Exchanges: New York
SICs: 5941 Sporting Goods & Bicycle Shops

Operator of the tenth-largest sporting goods chain in the United States, Sports & Recreation, Inc., is a specialty retailer of brand name sporting equipment and athletic footwear. During the mid-1990s, Sports & Recreation operated 84, 50, 000-square-foot stores in 29 states, the majority of which were located in smaller, mid-sized markets. The company began as a subsidiary of Brunswick Corporation in 1979, then after a decade of modest physical growth began expanding rapidly during the 1990s. After going public in 1992, when the company operated 20 stores, Sports & Recreation more than quadrupled the number of its stores during the ensuing three years, extending its geographic presence during the period from a 12-state area to include 29 states. The increase in the company’s annual sales during this three-year span mirrored the magnitude of its physical growth, soaring from $167 million to $525 million by 1995.

Late 1970s Origins

The genesis of Sports & Recreation occurred in Skokie, Illinois, at the corporate headquarters of Brunswick Corporation during the late 1970s. Brunswick executives discussed the idea of diversifying their bowling and billiards business and starting a sporting goods retailing business. As a result of their discussions, Brunswick created the predecessor organization to Sports & Recreation, a subsidiary retail business formed in 1979 and headed by James Bradke. The business began with one store located on Florida’s west coast, where the company’s store units would be confined for nearly a decade. Although the company was renowned for the rapid expansion of its stores during the 1990s—indeed, some would charge that the company was overambitious in its effort to open more stores—growth was initially slow for the Bradke-led, Brunswick subsidiary.

During the company’s first decade, corporate activity centered largely on simply securing the finances to develop the business. Financial stability first became a concern in 1982 when Brunswick found itself facing a hostile takeover. In the process of shielding itself from the unsolicited advances of a corporate suitor, Brunswick sold the sporting goods business it had established three years earlier, spinning it off to Bradke and other investors for $3 million. Bradke took two other executives with him when he left Brunswick and renamed the new, independent company Sports & Recreation Inc.

Expansion Begins in 1988

With Bradke serving as chairman and chief executive officer, Sports & Recreation set out on its own as an operator of three sporting goods stores. Five years after leaving Brunswick’s corporate umbrella, the number of stores operated by Sports & Recreation had increased to five. The desire to develop Sports & Recreation into a genuine chain was touched off, according to one industry analyst, by the encroachment of a rival sporting goods retailer into Bradke’s territory. In 1988, when Florida-based sporting goods retailer Sports Authority opened a superstore near Sports & Recreation’s corporate headquarters, the gauntlet had been thrown down directly on Bradke’s home turf. He answered with an aggressive move, directing an exhaustive expansion program that stood in sharp contrast to the years of slow expansion. During a five-year period following the opening of the Sports Authority store near Sports & Recreation’s executive offices, Bradke quintupled the chain’s store count, broadened its geographic scope extensively, and as a result created a formidable competitor for Fort Lauder-dale-based Sports Authority.

Each based in Florida and each executing ambitious expansion programs, Sports Authority and Sports & Recreation at first glance appeared to be following the same course toward securing the national lead in the retail sporting goods industry. However, upon closer examination, each were pursuing different corporate strategies. Sports Authority and other operators of massive retail ’’superstores” selected sites for their stores in major metropolitan markets, thereby following a general rule of thumb in the sporting goods industry that superstores required a population base of more than two million people to prosper. Accordingly, as sporting goods superstores proliferated during the late 1980s and early 1990s, the push was on to establish a presence in markets such as Detroit, Chicago, and Atlanta.

However, Sports & Recreation broke with tradition and concentrated its expansion on smaller markets. Bradke and his management team moved into second-tier markets such as Oklahoma City, Memphis, and Charlotte, North Carolina, establishing their stores in markets with populations ranging between 300, 000 and one million and avoiding the race to secure a foothold in big city markets. “We try to be very selective about the places we go,” Bradke said, explaining Sports & Recreation’s atypical expansion strategy. “We keep looking at all markets and look for a path of least resistance. We look for communities that seem to have a sporting goods flavor.”

As the company dramatically picked up the pace of its expansion, it did so under several different names. Instead of operating its stores under the Sports & Recreation banner, the company’s stores were graced with signs that were intended to strengthen the local, “hometown” image of Sports & Recreation’s stores. Building on such names as “Sports Unlimited,” “Sports & Rec,” and “Sports,” the stores then also adopted the local community name where a particular store was located. Accordingly, the chain included stores operating under names such as “Tampa Sports,” “Oklahoma City Sports & Rec,” and “Jacksonville Sports Unlimited.”

Before expansion could begin in earnest, however, Bradke still needed a solid financial foundation to support the establishment of massive superstores in secondary markets. The number of stores had increased to eight by the time Bradke had finally secured an arrangement with outside investors. In September 1989, a Luxembourg investment banking company named Investcorp bought a majority interest in the company, thereby facilitating the establishment of additional stores. With the financial strength provided by Investcorp’s backing, Bradke was able to obtain the capital needed to expand at the pace he desired. “We really haven’t had to use their [Investcorp’s] money for expansion,” he noted at the time, “but their backing did help us to get other outside financing.”

Once Investcorp had financially allied itself with Sports & Recreation, the push was on to extend the company’s presence beyond Florida markets and create a national chain. Between 1989 and 1991, the company’s financial growth told the tale of its physical growth, as Sports & Recreation quickly grabbed the attention of industry observers who were drawn by the prolific growth registered by the Tampa-based company. Annual sales during the two-year period shot up from $70 million to $138.9 million, nearly doubling while earnings rose from $4.8 million to $9 million. By 1992, when sales continued to rise robustly to $167.4 million, the Sports & Recreation chain comprised 20 stores spread across a 12-state area that bounded the southeastern and southwestern United States. Expansion was increasingly extending the company’s presence farther north and west, as the company aimed at becoming a nationwide retailer.

In the early 1990s, Sports & Recreation was recording the greatest growth in its history during the worst of economic times for retailers throughout the country. Indeed, Sports & Recreation stood as the darling of the sporting goods retail industry, growing by leaps and bounds and benefitting, to a certain extent, from the sagging business of other retailers. Just as the company was preparing to mount its ambitious expansion campaign, other retailers were moving in the opposite direction by shuttering some of their outlets. Bradke noted as much in an interview with Sporting Goods Business, explaining that “due to the decline of many department stores, there are a lot of large businesses available and a lot of them have base rental rates that can be taken over at a very good price.”

1992 Public Offering

Conditions during the early 1990s were ripe for Sports & Recreation’s expansion, at least as far as Bradke perceived the situation. “There are opportunities,” he remarked in 1991, “that have never been available before”; opportunities he did not intend to pass up. To obtain the financial means to expand his chain of stores further, Bradke took Sports & Recreation public in September 1992, making an initial public offering of stock at $17.50 per share. The public offering raised $68 million, which was used to pay off debt and to finance expansion that was expected to double the chain’s size within the ensuing two years.

By the beginning of 1993, the money raised from the public offering had erased nearly all of the company’s $31 million in long-term debt and left Bradke with $17 million in cash to open additional stores. Plans for 1993 called for the establishment of at least 12 stores and a 25 to 35 percent growth rate for each year thereafter, but even these lofty expectations were exceeded during the next two years as Bradke engineered a spree of store openings.

Company Perspectives:

The Company’s business strategy is to offer its customers the best value in sporting goods through a wide assortment of quality name brand merchandise, superior customer service and everyday low prices.

Initially, the spate of store openings was well-received both by those at the company’s headquarters and by outside investors. The first full-year after the September 1992 public offering was the best financial year in the company’s history. Sales were up 43 percent to $239 million, net income was up an enormous 124 percent to $11.3 million, and the company’s stock, which began trading on the NASDAQ market at $17.50 per share, was trading at $43.25 per share at the end of 1993. The glowing financial results prodded Bradke forward, leading to the opening of more than 15 stores in 1994 and the announcement that 23 to 25 stores were slated to open in 1995 and another 28 to 32 stores were scheduled for debut in 1996. Quickly, however, forecasts for the future soured, and Bradke’s hopes for rampant growth were dashed. A little more than two years after drawing praise for leading Sports & Recreation toward the best financial year in its history, Bradke found himself without a job and the company he had founded moving ahead without him.

Mid-1990s Downturn Brings New Management

Before Bradke’s departure, 28 stores were opened in 1995, bringing the total store count by the end of the year to 80. The feverish expansion that had taken place during the early 1990s, however, had begun to take its toll on Sports & Recreation. The company had more than quadrupled its store count during a period when the sports apparel and athletic footwear business was shrinking. As industry sales dipped, Bradke surged ahead with expansion, which by 1995 had saddled Sports & Recreation with mounting debt and bloated inventories, prompting a dramatic drop in the value of the company’s stock. Between December 1995 and February 1996 the value of Sports & Recreation’s stock was cut in half, plunging to $5 per share and precipitating Bradke’s termination.

Bradke was fired by Sports & Recreation’s board of directors in February 1996 and replaced by Stephen Bebis, who previously had been in charge of a Canadian chain of home improvement stores named Aikenhead. Upon being named as Sports & Recreation’s new chairman and chief executive officer, Bebis announced, “I will be an agent of change, but I see my role as re-engineering what already is a good company into one that continues growing while throwing off strong profits.” Specifically, Bebis put the construction of a new corporate headquarters on hold for two to three years and cut back the expansion plans for 1996 laid out by Bradke. Instead of opening as many as 16 stores in 1996, Bebis resolved to open only three stores and focus his efforts on controlling the company’s inventory and upgrading the chain’s computer systems. As Bebis adjusted to his role as the new leader of Sports & Recreation, many of his plans revolved around curbing the chain’s growth and taking the time to bring about order and structure to the free-wheeling growth of the company during the 1990s, but his vision for Sports & Recreation’s future was bold. Sports & Recreation headed into the late 1990s in pursuit of becoming the largest sporting goods chain in the country.