What’s In Store? with Karly and Chris (Fitness and Sports Retail)
Guest: Karly Iacono
Topics: Fitness and sports retail, active lifestyle
Chris Ressa 0:00
This is Retail Retold, the story of how that store ended up in your neighborhood. I’m your host, Chris Ressa. And I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC management
Karly Iacono 0:24
Welcome everyone to “What’s In Store”, the show where we cover hot topics at the cross section of retail and real estate. I’m Karly Iacono and I’m joined by my co-host Chris Ressa. Chris, good morning. How are you this lovely day?
I’m doing great. How are you?
Good. Good. Glad to hear it. I know you are on a whirlwind real estate tour. Tell us where you went.
I went to like seven states in 36 hours and for time zones. So I’ve been all over. It was wild. It was a whirlwind tour, looking at some properties to buy and got back last night. And I’m gonna take it easy as we get. That has to be some sort of record. I don’t even know how you get to that many states in 36 hours. So I’d love to see the map with the pushpins to see how that worked out. That’s amazing. I’ll tell you all about it offline. It was insane.
I hope it was productive. And glad you’re back. Yes. So thank you to everyone listening for tuning in for this month’s what’s in store, we’re always happy to have you. Today we are covering something, I think kind of fun. It’s the state of Americans push towards a more active lifestyle. And what is that change in behavior mean for retail real estate. And it really touches several sectors, sporting goods, fitness and sports entertainment are the three largest that benefit from this new trend. So we’re going to go through each and talk about what we’re seeing based on new consumer behavior and what tenants are benefiting. Let’s go.
So just broadly, Chris, let’s start with why we think there’s been a shift. We know there was COVID. Everyone was locked up. And they were forced to do things different, maybe go outside for a hike, maybe pick up golf things they hadn’t done. I know that’s a big one. Why else do you think consumers are shifting to this new lifestyle? I don’t personally think it’s because their doctors are telling them to. So what else is driving the change in behavior? In your mind? Any ideas?
I mean, there’s I think first off, if you went to some, I think there’s conflicting data around the changing behaviors, right with, on one hand, you might be to study on kids or playing video games longer than ever. And on the other hand, you see Lululemon and the athleisure craze and what’s going on. And so I think there’s some conflicting data about lifestyle. And I’m not professing to be an expert in lifestyle, but what I would say is that, I think there’s a lot of with social media, and the sharing of information in such a rapid speed, there’s definitely a lot out there and showing on what you can do outside of the home. And I think people have gravitated to that. And that’s leading to a lot of different things.
Like, I wonder if the pickleball craze would be as high as it is today, in 1997, as fast I think it would be hard. I’m not sure I would know what Pickleball is, if it wasn’t because of social media. And so that leads to a lot of different things, right? You see all these fitness influencers online, you see, like, on my newsfeed, and I’m sports fanatic. I see like, all these Sports Clips coming on. And so I think that leads to people wanting, I think we’re a nation that does like to try things. And we’re out there trying new things, whether it’s pickleball, or whether it’s your kids to soccer. And so that’s one and I think the next thing is there’s a lot of innovation happening, technology, and is really helping TV is really helping, but I think there’s been a lot of innovation happening in the spaces and I think that’s getting people excited about being outside.
I love that you just tied TV to increased fitness. But visibility. I know what you meant, but the funny correlation, also the rise of fitness trackers, right Absolutely. Everybody seems to have a Apple Watch. I know I’m wearing one, a Fitbit something and we’re becoming a lot more conscious about how we live in the data. And the last thing I would bring up is the the mindset of Gen Z. There’s been a lot of studies on as a generation, how they’re spending their time. And they seem to be much more health focused fitness, active lifestyle minded, all the way from the Lululemon insanity that’s happening through actually going and doing sports, not just wearing the athleisure, day to day.
So interesting confluence of factors happening right now, but hopefully all for the good. Hopefully. So let’s go through the different sectors and kick it off with Sporting Goods. There’s been, of course, there’s a wide swath of tenants here, but a few let’s touch on starting with Dick’s Sporting Goods. So we know they have some new concepts coming out. I was reading about their Dix house of sports, I think it’s called Right, yeah, where they have everything you can imagine from a track to high tech batting cages, rock climbing walls, golf simulators, it’s really an immersive experience, which of course, is intended to drive sales. So I thought that was very interesting. What are you seeing in the sporting goods space from new concepts? And how is that driving growth in your opinion?
So I think, I think the the first one I think of is Dick’s Sporting Goods, they are certainly innovating and doing really unique things they are they have the house of sports concept. They have their traditional concept, they have public lands. And, you know, we’re under construction on a traditional Dick’s Sporting Goods right now. And it’s gonna be the second one of the newest prototype, I think, is the second. The first one was in South Bend of their traditional store. It is a fabulous store, I’m excited. We’re set to deliver sometime in September, October, I forget the exact date.
And so, and then you go into public lands, which is a cool, like outdoorsy store, House of sports is this unbelievable, immersive experience. And, you know, they’re doing things with sports teams, and all this stuff. And I think it’s getting consumers excited about, you know, the sporting goods sector, and there’s a lot of new sports, and so they have all those products. There’s a ton of new gear there. And then the fact that the sport fashion apparel, athletic, you know, the fashion athletic apparel is, you know, on fire. And yeah, so I think that’s leading to good things for the retail real estate, because, you know, companies like Dick’s are trying to bring these concepts to different markets.
So they are definitely one of the bright spots. In the industry credit, Intel reported that their year over year sales were up 5.3%. And if you think about the last three years, right, we had COVID, we had sales ROI down and we had a huge jump and 21 and 22. For their sales to be up and 23 year over year coming up off of such strong growth is amazing to me that they haven’t hit a saturation point. So I think that’s a really good metric, and definitely a bright spot overall.
Yeah, I think growing sales are always a good sign, especially, you know, given some volatility in the capital markets and the noise in it in the headlines today. But I think when you’re coming out with all these new concepts, you’re spending money on your stores, and there’s innovation in the product that’s in the store, I think consumers open their wallet, and they find a way to figure it out, especially in something they’re so passionate about, like athletics, sporting goods, athletic fashion apparel.
And I think all of that additional effort that Dick’s is putting in to the consumer experience is really going to help them grow market share. Because at the end of the day, a lot of these are commodity items, and you could buy them multiple places. So I could probably order the same soccer ball in 10 different places, probably a lot more than that, actually. But if you’re in the store, you’re trying things you’re experiencing it, you’re going to be drawn to that brand. And that’s going to be the first to come to mind, and probably the first place that you’re in a search either online or in store. So I really think that their efforts are gonna pay off long term with increased market share, which we’re already seeing.
What I would say to that, I think that’s true to a point. I think that’s true for the consumer who knows exactly what they want, right? But a Dick’s Sporting Goods is a superstore in my opinion you know their, their prototypes for traditional are 45,000 feet, the house of sports 100 down As be, you know, when you go into a ditch or get a great service, you can ask the questions to that you have, they also have huge depth of product. I’ve learned about a ton of new brands, every time I’m going to Dick’s Sporting Goods, they have all the sizes, colors, like I said, the depth of product, all these different brands. And so, you know, like, oftentimes, I’m like, I need a couple of workout shirts, but I’m not sure what and so I’m going to go and look at Dick’s Sporting Goods. So I’m not sure. The I would say that, sure, you can buy things everywhere. But the appeal to the depth of product that they have, to me, you know, helps the art of discovery, which I think is a key component in the retail sale.
I love that you brought that up art of discovery is such a nice way to say that, because it’s true, right? It’s maybe not as commoditized. But I was simplifying it to say that there are so many variations. And you probably have people who are new to some of these sports or exploring or upgrading and they do need the knowledge from the store associates and they need to try things. Test them. So you’re right. Yeah, that makes a lot of sense. Sure. What do you think about hibbett Sports that’s been a name in the headlines a lot this year is? Well, I know they’ve got a really strong growth plan projected their stock has been a wild ride for the last few years up and down and up. So what are your thoughts on hibbott as a company,
so I’ve been a landlord of hibbett for a long time, love hibbott. I think, you know, the sporting goods sectors just overall to me, more exciting than it’s ever been with the innovation. So you have Dick’s Sporting Goods, we talked about them, you have Academy who started to expand to new markets, which is great company, and they offer real awesome value experience to the consumer. And then you have hibbott, which is this small format sporting goods store, they bought a they bought a brand that’s in an urban wear brand. They have really, they go into really interesting markets, they’re able to go into these small markets and offers an experience that some large format retailers aren’t able to offer. So I’ve always been a big fan of hibbett I think they do a great job, their DLC tenant, and I’m fat. And they’re online, and they’re online, it’s also done really well. So
I saw that their online growth was pretty strong. I think it was 8%. The last time it was reported, which is as strong and it looks like overall, they’re performing well on their stores too. So perhaps its overall expansion, not one taking from the other, which is exactly what you would want to see. Nice. All right, anything you want to add on academy or any other sporting goods retailers before we move on to fitness.
I think you know, the other one, I would say like that leans in is the you know, the other piece of it is that we didn’t really touch on is just the sneaker fanatics in the world. And you know, the the fashion part of footwear from a sneaker perspective, you know, the and you look at what the footlocker has is doing from the store perspective, they’re really they’re opening these new cool stores, they call them power stores. They’re fascinating, awesome, like world class, you know, what you might call a sneaker store and some streetwear they have that’s just and I will tell you some of the products in that store. I never we’ve never seen before. So I think they’re getting amazing product. And I think, you know, there’s I think the sector is huge. And I think those sporting goods retailers are, they’re all doing a really good job right now they’ve capitalized on this, you know, coming out of COVID We’re gonna get our kids out of the house.
Athletes are is huge. I mean, beyond just sneakers we touched on Lululemon. But I think every brand is trying to catch up and capture some of that market share. It’s just amazing how it’s become the go to style outside of the office. And perhaps even for some people inside the office. It’s just it’s such a huge trend. I think actually, when I was reading habits, earnings said 90% of their sales were apparel and footwear. Yeah, absolutely. Sporting Goods items.
That’s crazy. I would put sneakers in a different category. Okay, because there’s sneaker collectors out there, right? The sneaker heads are huge, right? I know people who have like 200 pairs of sneakers and like they won’t take them out of the box. So you could go to like stock X i have a frankly, you know, I have a friend who’s like waiting to buy sneakers on when they drop either in the store or on the, you know, on the Nike app, and then they go to stock X and flip them. And people are flipping sneakers. And it’s a huge, a huge thing. So
what percentage sales, the collector type consumer is versus just everyday? Probably? I don’t know.
I think it’s big, secret. So big. I mean, there’s these exchanges out there now like that you could, that people are flipping sneakers that are on fire. So I think sneaker heads are a huge, huge, important part of the business. And they’re also the early adopters for these brands. Right. And so I think, I think it’s a totally different a different customer than the athleisure I think it’s at, but it’s really important to, you know, the consumer brands, whether it’s a cream, whether it’s Nike, the sneaker head matters.
I would love to see those sales separated out, right, what are that high end Limited Edition? We’ll call them sneaker head collector sales versus everyday for a company like Nike. I don’t know if that data exists, but it’s pretty interesting that it’s such a big part of the segment.
Yeah, I mean, you know, some of the lines when shoe drops at like footlocker is astounding.
That’s amazing. Yeah, clearly not my world, I got to get in on this, I had no idea was that bit though, never knew what I was missing. Let’s move on to fitness. So again, Americans becoming more active, they’re out of their houses. Some have said that the gym is becoming sort of a social hub or a place to connect when people are working from home or or working from both the office and home, it’s becoming a more important piece. And that doesn’t mean that the workout from home or the omni channel fitness has gone away. It’s almost that we’re we’re kind of taking both and wrapping him into our lives.
With many people having peloton memberships and gym memberships. And the stat that I was looking at, I think this was again, credit, Intel 19% of the population have active gym memberships, but that’s expected to double so the size of the fitness industry is expected to double in less than 10 years. So we you know, that’s huge growth over time. There’s a few companies that have done really well capturing the the market segments, some to note would be Planet Fitness, easy sport, LA Fitness and lifetime on the high end. So those are the three that we watch. What’s your view overall on fitness?
You know, I think that the the first thing I think about is I love that, that stat who said I talked about this all the time, which I think Americans missed, like only 19% of Americans have a gym membership. So there’s huge opportunity in the fitness. Now, one of the things if you talk to the gym operators that, you know, Planet broke the mold, which was, you know, getting the non gym members to actually start going to the gym in the 80s was really hard. And when planet you know, broke the mold with, you know, the membership pricing and figured the model out that really, that really, I think was a breakthrough in the fitness industry.
And then you started seeing, you know, a competitive pricing draft from all these other gyms. So I think it’s done a lot for real estate because for a long time, it was a challenge to get fitness center into a shopping center because of restrictions. I think that’s the tailwind. I think everyone knows that. Gyms belong in shopping centers, they create new traffic people come on a regular basis. And at the end of the day, do you know the two arguments were always one parking? And two? You know, does someone go to the gym get sweaty and then go shop. And the first one on parking. I think there’s been a lot of debunking of this myth that like you know, a lot of peak retail times are not peak workout times.
However, the fact that someone’s so used to going to the shopping center is such a repeatable visit, when you know, when they’re going there all the time. It makes it a lot more convenient for them when they decide to go shopping to go to that shopping center. So I think that’s yeah, and then attention. And then I think the last thing, like there’s been this huge push into these, you know, class fitness and alternative fitness that I think has really been a boon to To the shopping center space, you know, you’ve got from Orangetheory to stretch lab to, you know, the the rowing places to f 45 to hot yoga. And I think the overall the club Pilates and the list goes on and on and on.
And I think these have, you know, brought a new consumer to shopping centers that maybe were doing Pilates at home or went to some Pilates studio that was like, in like this quasi flex building, that’s now this whole class fitness guy branded by these companies and pushed and scaled out, which I think has done a been really good for shopping centers, and really awesome for the consumer. And, you know, in some markets, as you talked about, you know, people talk about they have a peloton, they have a box gym membership, something and then they have like their class fitness membership. So the notion that, you know, people were ever going to come back to the gym after COVID, that got the box real quick. And I’m super bullish when you have 90% market share. And there’s a lot of opportunity on the fitness sector.
And a huge diversity of offerings for retail, right, very small square footage, specialty offerings, like you just said, of all different types that target different consumers. And then we have our massive LA Fitness lifetime sort of gyms. And there’s room for both. And I think that’s the end message. And when we see the three leaders in this space, opening new locations at a time when there’s some economic pressures to put it mildly. I think that’s a great sign. And it really does show that consumers are dedicated to this more active lifestyle, or if not dedicated, they’re certainly still keeping their gym memberships. So they feel connected to the active lifestyle, whether or not they’re actually going it’s different. But it’s still an important part. And there is growth, even in a time of economic stress. That continues, I think there’s
there’s two things that really, you know, when you’re talking about working out from home versus going to the gym, there’s two things that I think really make it so much more successful for the gym owner versus the homework gap, which is one is the social nature and the accountability, it’s a lot easier when no one’s watching to say I’m going to miss a workout. And so we both love the act of going to the gym. And then the second piece of that is, you know, I have a pretty built out gym in my house and something I always wanted. But if I signed up for a gym membership for like, I don’t know, like the next 20 years, it would be cheaper than what it cost me to build that engine. And
so it’s pretty elaborate.
There’s a cost, the cost benefit, in my opinion is, you know, skews to the gym heavily. And I think you know, you’re always gonna have runners who want to go run outside, you’re always going to have, you know, the people who are going on hikes and doing that. But there’s from the equipment to the social accountability to the cost. The gym is clearly here to stay and here to grow.
I agree. And I think the numbers are showing that you’re an eye view on active lifestyles aside, it really looks like this is an overall theme for the younger generations who are driving the growth and the push. And that’s for sure. We’re gonna, I think it will continue. Absolutely. Let’s go to our third and final category today, just briefly, and that is sports entertainment. Now, we talked about pickleball on a previous episode, but it seems like you just cannot get away from talking about pickleball because the stats are staggering. So I’m just gonna throw it out there before you give me your thoughts on on the latest pickleball operators and trends.
There were 4.8 million pickleball players in 2020 to 4.8 million, which was growth of 39% since 2019. So in less than three years, the sport has grown 39%. And even more interesting most of that growth is in the younger age brackets. So it’s no longer the same mindset that it’s a sport for people who can’t play tennis. It’s now for everybody, and it is just on a tear. And the last thing I’ll mention quickly, is we’re seeing private equity entrants into the space which you and I touched on would be A huge turning point. So the and you probably saw this, the owner of the Carolina Hurricanes purchase the pro pickleball Association and pickleball Central, and he’s very active in private equity. And that that was a big headline just recently. So it’s here to stay. Tell me about it. Tell me what you think, why do you love it? I think
so, from a consumer perspective, you know, you always wonder like, what’s a fad and what’s not, I think the numbers are showing that this isn’t a fad. And as it becomes in from a real estate perspective, I think Top Golf broke the mold in the sports entertainment world, which is like bringing, like sports and entertainment from a consumer experience that anyone can do, and to a commercial property setting. And, you know, a while ago, it was, you know, people were always talking about, like, I want to be the Uber of you name the industry, right. And now, what I hear is like, people want to be the top golf of you name the industry.
And I don’t know who’s going to win in the pickleball arena, but it’s early days, but people are. People are certainly trying, there’s a lot of operators out there and right now, because you know, building a top golf and a lot of these pickleball facilities, building a Top Golf is not an inexpensive endeavor. And, and looking and I’ve looked at some of these pickleball facilities and building a pickleball facilities in the same price range. And so the the whole capital credit, going into it is, I think, with the slow pieces right now, but soon as someone starts to, you know, really get this, it’s about, it’s definitely going to take off. And there’s a couple of operators out there who were starting to grow, I think, you know, there’s a big pickleball there’s chicken and pickle.
And I think that you’re about to start seeing a significant more of these, and I’m sure one or two will take the reins and scale like other industries. You know, right now, you have a lot of like tennis courts that offer pickleball. And like, you know, things like this, but like these massive facilities, which I think change the dynamic of commercial real estate properties. You know, someone told me, I don’t know what the number is, maybe there’s 100 open in the US under a you know, I don’t know, anyone operators got 20.
So runway is huge, and there’s a lot of opportunity. So we’ll say, I think one thing of note is that what is really driving some of these big concepts, not that like tennis court pickleball, meaning like the tennis court that offers pickleball. But these large commercial facilities is the food and beverage, and it’s a large component of the volume that these facilities are producing. And so you wouldn’t have the food and beverage without the sports entertainment. But I do think it’s an important, important static note that the food and beverage is really driving the sales volumes in these places.
And that’s really the difference between a sport experience and an overall entertainment experience. Right? Is that the meshing of those two, I was at a golf simulator recently that just opened and there were Gosh, I don’t know, maybe 10 rooms, that all had full service, you know, menus, bar menus, beautiful build out. And then there was a complete restaurant bar and kind of joint area as well. Beautiful, absolutely, like fantastic build out. And I thought gosh, even if you didn’t play golf, or you didn’t want to pick up a club, what a great place to meet with friends.
And obviously that’s what they were going for. Which ties back to your point at the very beginning of the episode of the driver of social media and experiences and people seeing other people getting out and doing different things and wanting to do the same. I think this the food and beverage element makes it a joint experience. And the sports is just something you can point to to say, Well, I went and did XYZ with my friends or family, whomever it is, right. So I think that’s adding that element makes any of these experiences which are would be more limited, much broader and appeal. For sure. We’ll see what’s next. Maybe ping pong. I mean, there’s just endless ideas here that you can partner with food and beverage so it’s gonna be fun
What was it? A ball? kickball? A ball? Kickball, okay. Okay, cool. Okay, kickball. always liked kickball. Okay. All right. You start that up. We’ll get a group together. All right, this was this was a lot of fun. It’s a sector that I think we all should keep watching. as it emerges, and hopefully, the trends continue to be as positive as they have been the last few years to everyone watching that was this month’s episode of What’s in store covering Americans push towards an active lifestyle and how it affects retail real estate. I’m Carly Iacono. And Chris, so glad you could be here as well.
Thanks everyone. We’ll see you again next month Take care.
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