HomeClub Founder Turns His Hand to Sporting Goods Stores
Robert J. McNulty, who in two years built the hugely successful HomeClub chain of discount home improvement stores that Zayre Corp. bought last year for $151 million, is preparing to launch a chain of no-frills sporting goods stores called All American SportsClub.
A hard-driving businessman who also considers himself a “sports fanatic,” McNulty has just raised $10 million in private financing for the new project and is busily negotiating for store sites in California, Arizona and Colorado.
McNulty plans to open four stores in a six-week period beginning Oct. 1 in Long Beach, Burbank, South Sacramento and Torrance, and then go after additional financing to start up 18 more stores next year. He wants to move fast, he said, to secure a substantial market share that will cement his relations with suppliers.
Moreover, McNulty, who remains president and chief executive of Fullerton-based HomeClub, said he wants to enjoy the fruits of his concept before others in the sporting goods business start shaking the same tree. “We think if we are right with the concept, everyone else will try it,” McNulty said.
The “concept” he is talking about consists of applying to the merchandising of tennis rackets and hiking boots some of the same warehouse sales techniques, coupled with club membership and deep discounting, that proved so popular in selling paint and faucets.
He says he plans to undercut the prices of his competition by 25% to 30% by eliminating trucking and distribution systems and selling directly out of high-ceiling, cement-floor warehouses with large volumes of inventory. He says that while most sporting goods stores mark up their merchandise from 40% to 60% and discount only a few items to attract shoppers, SportsClub will offer consistently lower prices.
“We will use a lot of mass merchandising techniques and offer prices as low as the other guy’s promotional prices day in and day out,” he said.
While SportsClub stores will be open to the public, those who purchase $8-a-year individual memberships or $5-a-year group memberships will get an additional 5% discount tallied at the check-out stand. For several months, McNulty said, the company has been working to obtain membership commitments from school systems, credit unions, parks departments, “sports-minded” corporations and athletic clubs.
Each SportsClub store, McNulty said, will contain about 60,000 square feet and house a broad array of sports equipment and clothing with a retail value of about $3 million. By contrast, he said, the average sporting goods store is about 10,000 square feet and is stocked with about $600,000 worth of merchandise.
Entirely Different ‘Ambiance’
Despite similarities in warehouse merchandising, McNulty said SportsClub stores will have an entirely different “ambiance” than HomeClub outlets: They will have lively color schemes and special services such as an adventure travel agency and a library of sports-oriented books and videos. And they will feature such “traffic-drawing events” as sports celebrity appearances, slide presentations, sports clinics and classes in outdoor cooking. “It is going to be a fun place,” McNulty says.
Stressing customer service, McNulty says SportsClub will employ an “advisory staff” of experts in specific sports who will counsel shoppers on how to choose the right equipment for their needs and level of play.
While McNulty has been concentrating on acquiring real estate and financing for SportsClub, he has handed over the operational reins to Thomas K. Haas, whom he recruited from Eastern Mountain Sports, a chain of 21 sports stores headquartered in Peterborough, N.H.
While McNulty provided hands-on leadership at HomeClub, he said Haas will run the show at SportsClub once it is established. McNulty said that although he will remain chairman and a major shareholder in SportsClub, he plans to continue working at HomeClub for the 2 1/2-year duration of his contract and then go on to pioneer other enterprises.
McNulty said that although the HomeClub merchandising concept is foreign to most of the sports industry, HomeClub’s success helped him obtain the initial $10 million in financing for SportsClub. The money was raised through a private sale of stock to Oak Investment Partners, a venture capital company in Westport, Conn., and a number of other “blue chip” investment firms including Boston-based HLM Partners, Cambridge-based Harvard Management Co. and New York-based American Express. The stock sale closed July 2.
McNulty said that from the time HomeClub obtained $4.5 million in start-up funds from venture capital investors, it was in an uphill struggle, with some industry observers predicting that the concept of using a membership club to sell plumbing, building and other home-improvement items at bargain prices would never catch on.
Despite some dire predictions, HomeClub has grown from two to 25 stores. After an attempt to raise expansion capital proved disappointing in October of last year, HomeClub agreed to be acquired by one of the nation’s fastest-growing retail firms, Zayer Corp of Framingham, Mass., for $151 million. Owners of HomeClub’s original stock made substantial profits on the sale, with McNulty at the time saying he stood to reap a $6.5-million profit on his stock and options.
While McNulty brings his HomeClub experience to SportsClub, Haas brings an impressive track record in sporting goods, according to Thomas B. Doyle, director of information and research for the National Sporting Goods Assn., a Chicago-based trade association. Doyle said Haas has a reputation as “a brilliant strategist and he will be a very tough competitor.”
But Doyle said SportsClub’s goal of combining low prices with high service will be very difficult to achieve. “The trick is whether they will be able to make a profit doing this,” he said.
Currently Haas and the growing SportsClub management and sales team are working out of offices in Anaheim, not far from HomeClub’s Fullerton headquarters--although they will soon move to more permanent quarters in Long Beach.
Strengths, Weaknesses Analyzed
In Haas’ office is a map of the greater Los Angeles region studded with multi-colored dots representing the locations of 84 full-line sporting goods outlets, including the chain stores of such substantial competitors as Oshman’as and Sportsmart. “We already visited a majority of those stores and have analyzed their strengths and weaknesses,” Haas said.
Nor has SportsClub’s emergence in the market gone unnoticed by its competitors, according to Haas. He said: “We have gotten feedback from some of our local vendors that some of our competitors have already contacted them in an attempt to dissuade them from doing business with us on the basis that our prices will be too low.”
Although reluctant to criticize any individual competitor, Haas says that most of them are like peas in a pod. “I would defy you to walk into a couple of the more prominent ones and know which one you are in because of the similarities,” he said. One of SportsClub’s advantages, he contends, is that it will be distinctive.
“We are going to be the forerunners of the industry,” McNulty predicted. He said that he approaches business the same way he does softball, kickboxing, and racquetball. He enjoys the competition. “All of it is a big game. Business is a big game,” he said.
