by Ed Stack
We entered the town with a splash: that March we opened three Dick’s stores in and around Pittsburgh on the same day, bringing our total roster to twelve. They were bigger stores—while our new stores had averaged about forty thousand square feet until then, these followed the new Vestal model of about fifty thousand square feet. Pittsburgh reacted as if it had been waiting its entire history for just such a place. All three stores blew away our expectations.
That summer, we opened a new headquarters in rented space, in an office park on the west side of town, near the airport. This wasn’t one of those cases you read about in which the city rolls out the red carpet and offers an incoming business tax deals and such. I doubt anyone in officialdom even knew we were coming. Dick’s was still a small operation. We employed many more people at our three Pittsburgh stores than we did at our new company headquarters.
The Stacks left Binghamton on August 16, 1994. It was a wistful day. Binghamton had been the setting for not only my childhood but our kids’. My history and our history were inextricably tied up in this unassuming, unpretentious place. And while Dick’s technically had been headquartered a short ways out of town for the last few years, this was ground zero. This was where my dad had made his mark, both as a businessman and through his community work. Court Street would always be Store Number 1. We were leaving home.
The moving vans were in front of our house as we loaded up our Toyota minivan. Our second-born, Brian—who’d turned six the day before—asked, “Dad, can I sit in the very back of the van?”
“Sure,” I said. “But why do you want to sit back there?”
Brian was an empathetic kid. A few years before, he’d dressed as an Indian for Halloween and had earned the nickname Chief Make-Me-Smile. “Dad,” he replied, a little teary, “I just want to look at our house for as long as I can as we drive away.”
Oh my God, I thought. Unpack the trucks. I felt a sharp pang of doubt. Was this really a good idea? There’s a fine line between balls and brains, and moving the company to a city to which we had no connection fell right on that line. It was way too late to second-guess the decision, but that didn’t stop me from wondering.
It’s a six-hour drive from Binghamton to Pittsburgh. It was dark when we rolled in on Interstate 376. Denise, riding shotgun and pregnant with our fifth child, Mary, couldn’t have been happier. This wasn’t Boston, but she was back in a big city.
It took me just a little longer to adjust. We moved into a rented house, and I felt my first pang of homesickness the morning after we settled in. I stepped into the yard, looked up and down the block, and realized I didn’t know one of my neighbors. All my life I’d known everyone around me—and their families, and stories of their pasts, and how they fit into the mosaic of Binghamton life. I knew no one in Pittsburgh but Ed Haberle and the forty-nine families we’d moved down. It was an uncomfortable feeling. Within a few days the real estate company we’d rented our offices from called to invite me to play golf. I walked into the clubhouse locker room, as I’d done at courses in and around Binghamton since college. There must have been one hundred guys there, and I didn’t know one. I was invisible.
But my discomfort passed quickly. Pittsburgh is, like I said, a welcoming place, and we made a lot of friends quickly. The city was loaded with culture—great restaurants, theater, music, museums—and neighborhoods that boasted history and character. Of course, we knew going in that it was fanatical about its sports teams, both college and pro.
Most important for me, Pittsburgh turned out to be a wonderful place to raise kids. We loved our neighborhood. The schools were terrific. And our new headquarters was a great base of operations for the company; the airport terminal was just minutes away. I could be in any of our stores in a matter of hours.
And yes, I became a Steelers fan. I still follow the Giants—that habit doesn’t die easy—but my main fandom these days is reserved for the Steelers. It’s interesting: Back in Binghamton, everyone followed either the Giants or the Bills. When we moved, those who’d followed the Giants became Steelers fans. Those who rooted for the Bills never did—they weren’t about to back a conference rival.
I can’t say I’ve switched allegiance to the Pirates, however. My relationship with the Yankees has run too deep for too long. That first glimpse of Yankee Stadium remains a seminal moment for me.
* * *
The three new Pittsburgh stores ushered a new phase of our long and close relationship with Nike. Since we first ordered the fledgling brand’s shoes at Court Street, Nike had ballooned into an industry giant—it was, by now, the biggest brand with which we partnered. It had been key to our success, its footwear and apparel accounting for a large share of our revenue.
Nike’s primary partner in footwear was then, and continues to be, Foot Locker. We’d always been a bit jealous of that partnership. Still, we believed we could build the business we did with Nike if we devoted more attention to their lines of apparel, which they were eager to market and which offered us high potential sales margins. Our thinking was that with the size of our stores, we could create a presence for their clothes that was bound to attract attention. The most dramatic way to do that might be with brand-specific shops within Dick’s stores.
This wasn’t a new idea. Department stores had built brand shops for years. I remember seeing my first one years before, in a department store in Syracuse—a Ralph Lauren shop, beautiful and compelling, filled with shirts, sweaters, jackets, and ties that all seemed coordinated, and that were presented in a wood-paneled, old money style distinct from the rest of the sales floor. My reaction had been, “How could we do something like this in our stores?”
At the time we had only four or five Dick’s locations, but the idea had stayed with me, and when we were planning our three Pittsburgh stores we approached Nike with the idea of creating Nike Shops within them. Nike liked the idea, so together we developed a small piece of each store that showcased the company’s clothing. These Nike-specific shops took off—so much so that we rethought the way we displayed apparel throughout the chain. The result was our “power aisle” running up the middle of each store’s sales area, lined with our top clothing brands. With those in place, our business took off.
Our partnership with Nike would continue to deepen in the years that followed the Pittsburgh innovations. This is jumping ahead a bit, but since I’m on the subject I’ll tell you how it morphed. Around 2005, I went to Nike’s headquarters to meet with two old friends—Gary DeStefano, the Nike rep who’d met my dad in our Syracuse store and who’d since become Nike’s vice president and general manager for North America; and Ed Haberle, now the company’s director of strategic accounts. I proposed that Dick’s and Nike agree on a plan to double our business in three years. They came back with a concept that they called Market Place Transform. It called on us to redesign our sales floors by building a large Nike Shop up front, not far from the doors, with men’s apparel on one side of the power aisle, women’s on the other.
We tested the arrangement in a few cities and found it worked, so we installed these shops in all of our new stores and renovated many existing Dick’s to include them. The public response was very enthusiastic. Our apparel sales took off, as did our margin rates. In three years, we more than doubled our Nike business. We then returned to Nike with the audacious suggestion that we double our business again over the next three years, and damn if we didn’t pull it off.
We work well together. These days, Nike remains our most important strategic partner, accounting for roughly $1.5 billion of our annual revenue, or just under 20 percent of our business. I understand we’re among their top five partners worldwide, and their biggest outside retailer of apparel.
I have to be honest, though: it still drives us nuts that at times we don’t get access to some footwear styles that Foot Locker gets.
* * *
We were in the final stages of planning the company’s move when we took on a second round of outside investment. The first
buy-in by our venture capital partners had been very modest. They’d dipped in a toe, no more, just enough to enable my siblings to take some chips off the table and to give the company a little cash to use in planning new store openings. But fast as our growth so far had seemed to us, the investors were inclined to move things along at a much speedier clip. Opening a store or two a year, or even three at once, was in their minds a losing strategy, as others might establish a beachhead in markets before we got to them.
So now our existing investors wanted to inject more cash into the business to speed things up, and we invited in another big player. Denis Defforey was a French businessman who’d cofounded Carrefour, one of the world’s largest retail chains. Carrefour (which is French for “crossroads”) was among the innovators of the hypermarket, which combined a supermarket with a department store years before Walmart Supercenters began cropping up in the United States.
Defforey had led Carrefour until his retirement in 1990, and he now devoted himself to investing in entrepreneurial companies around the world, with a particular focus on retailers. Before he came to us, he’d already invested in Office Depot, Costco, PetSmart, and several other US chains. He wasn’t looking for control; he seemed to just get a kick out of giving a boost to companies he liked.
I met him in roundabout fashion through Jerry Gallagher, who was an investor alongside Defforey in PetSmart and Office Depot. Gallagher introduced me to Defforey’s investment banker, a guy named Steve Lebow, who came to see me in Binghamton with the news that Defforey was interested in investing in a sporting goods retailer. He didn’t like the bigger American players in the industry but was intrigued by this smaller outfit that Gallagher seemed so excited about. If I was interested, he’d arrange for Defforey to visit.
Of course, I was interested. So Denis Defforey, one of the world’s greatest retailers, flew into Binghamton to meet me. He was a generous, almost unbelievably humble man of few words—he didn’t need to hear himself talk. When he did say something, however, it was worth listening to. In that respect, he reminded me of my grandfather. And I loved the guy from the first minute we talked. He convinced me that day that his sole interest was in seeing me, and the company, succeed to the greatest extent possible. Rarely have I met someone so instantly likeable. Even more rare, my initial impression never changed. Denis Defforey was a class act, a great man who also happened to be a great guy.
When I say he was humble, I mean it. “The one thing I’d like to do when I come to the United States,” he told me, “is get a good steak.” He had a favorite spot: LongHorn Steakhouse. I’ve eaten many steaks there with Denis. Whenever he later came to Pittsburgh, that’s where we’d go.
Naturally, he wanted to see a typical Dick’s in action, so we drove up to Syracuse together and visited the two stores there. He seemed to like what he saw. Back in Binghamton, we talked in my office. He was a gentleman throughout. I found myself, at age thirty-nine, thinking that he was the type of businessman I wanted to be.
Defforey committed to putting $10 million into Dick’s, and he took a seat on the board. He was a great addition. He’d fly from Paris to JFK on the Concorde, catch a connecting flight to Pittsburgh for our meetings, and after we wrapped up, fly back home. He never once turned in an expense report for his travels. “You know, Denis,” I said to him once, “we’re happy to pay for your travel to these meetings.”
“No,” he said, “the company needs the money more than I do.”
He was immensely respectful. I figure Denis might have spoken at half the meetings he attended. He’d always raise his hand. “Denis, did you want to say something?” I’d ask.
“Yes, if you don’t mind,” he’d say. “I’d like to share my opinion.”
At about the same time that Denis came aboard, Lebow told me that Paul Allen wanted in, too. His Vulcan Northwest venture capital group out of Seattle was another investor in PetSmart. He was also cofounder of Microsoft, the owner of the Portland Trailblazers (and later the Seattle Seahawks), and among the country’s great philanthropists. I was excited that he’d even heard of us, but I also knew we already had too many outsiders with a voice in how Dick’s ran. “Steve,” I told Lebow, “this deal is oversubscribed as it is. I don’t want my family’s stake in the business to be diluted any more.” Lebow suggested I invite him to make a minimal investment—just $500,000. It wasn’t much dilution, he pointed out, and he promised me that I wouldn’t regret it.
We were still getting the paperwork together for this new round of investment when our chief financial officer walked into my office. “The strangest thing just happened,” he said. “We just had ten million dollars turn up in our account. An extra ten million dollars.”
We tracked it down and found that Denis Defforey had already sent in his stake, even before we’d signed anything with him. That’s the kind of great shareholder he would demonstrate himself to be, time and again. And Steve Lebow was right—Paul Allen’s Vulcan group was every bit as good. Both newcomers proved to be great friends to Dick’s Sporting Goods.
Long after the fact, I learned from Jerry Gallagher that back in 1991 or 1992, when Gallagher had been conducting his initial research into Dick’s, trying to determine whether we were a good investment, he’d called Jack Smith, the CEO of the aforementioned The Sports Authority. We’re thinking of investing in Dick’s, Gallagher told him, and I want to know what you think of them.
They’re a little company in upstate New York, Smith replied. I don’t think we’re going to bother them very much. They’re not a big deal.
Smith knew better. He knew we owned the markets we were in because he’d been with Herman’s before he moved to TSA. Our territory was familiar ground to him. I suspect it was his ego talking that day. But that’s reportedly what he said, and with that, Jerry Gallagher put his money behind us. Jack Smith, destined to be one of our titanic competitors, made it happen.
Had Smith been more strategic in his reply, things might have turned out differently. He could have said he thought we were pretty good and that they’d eventually put a couple of stores in our markets to see just how good. I’m sure that would have been enough to scare off the risk-averse Jerry Gallagher. If he hadn’t come aboard, he wouldn’t have introduced me to Lebow, who in turn wouldn’t have brought Defforey and Paul Allen into the company.
And without those two, we might be part of the industry’s roadkill.
* * *
So here we were in 1994, settling into Pittsburgh, a chain of twelve high-performing stores that formed an arc up western Pennsylvania, across upstate New York, and into western Massachusetts and Connecticut. That made us a big operation by the measure of our past but barely a blip on the radar among the country’s major-league sporting goods retailers. Herman’s, though in trouble, was close to national in its reach. The Sports Authority was super-regional. Oshman’s, based in Houston, controlled a sizeable piece of territory west of the Mississippi, especially sports-crazed Texas. A handful of big regionals that dwarfed us held lucrative markets all around the Lower Forty-Eight—Koenig’s out of Cleveland, Chick’s in California, Sportmart in Chicago.
We were in a viciously competitive business. The recently departed among sporting goods merchants already included some big names, and it would claim many others in the coming years. A dirty little secret of retailing is that there’s really very little customer loyalty; customers will stick with you only until something better comes along—in other words, loyalty is simply the absence of an alternative. Which means that you have to constantly reinvent your product mix, your marketing plans, your style of doing business. You have to always assume you’re under attack. If it’s not true today, it will be tomorrow.
Not long after our new partners joined us, another big player in the sporting goods business moved in on our turf. Sports & Recreation Inc. was a publicly traded, Tampa-based outfit that ran big, warehouse-style stores. By that, I mean that their merchandise was displayed on the pallets that it had been trucked i
n on. They made little effort to emphasize the qualities of the products they sold or to have people on the floor who had expertise in the gear. But they were inexpensive and offered a wide selection of sporting goods.
The formula evidently worked for them, because Sports & Rec was growing fast in the early and mid-1990s, and eventually their expansion brought them into our territory. They opened a good-sized store in Syracuse and went after the same hunting, fishing, and camping business that we serviced. We were nervous about them, very nervous.
Our venture capitalists were even more so. Michael Barach was at a conference at which Sports & Rec was presenting, and during a question-and-answer session he raised his hand. “You guys are going into upstate New York,” he said. “There’s a little company called Dick’s Sporting Goods there. What do you think of them?”
A Sports & Rec officer replied, “We’re going to decimate them.”
Barach came back to us all freaked out: “These guys say they’re going to decimate us! What are we going to do?” I tried to calm him down. “They’re going to be tough competition, but they’re here,” I told him. “Our only choice is to compete with them, and compete aggressively.”
As any athlete will tell you, trash-talking the competition can work both ways. It can galvanize your team, get your fellow players pumped up. But it can also backfire on you and instill a resolve in the people you trash-talked. Now, in the boardroom at Dick’s, and in the stockrooms and break rooms of our stores, and in our warehouse, “We’re going to decimate them” became our battle cry.
We had some fun with it. In our newspaper inserts, we labeled our loss leaders “decimators”—every week, up in the top corners, our ads would showcase two or three decimators, with prices just plain stupid cheap to drive people into our stores. I doubt anyone at Sports & Rec picked up on the reference, but our people loved it.