WhydidDick’sdecidetoleaveeBayandtakeoveritsowne-commerceoperations?

Founded in 1948 by Dick Stack in Binghamton, New York, Dick’s Sporting Goods has grown from a small local business selling fishing and camping supplies into a Fortune 500 business with stores throughout the United States. After Stack’s retirement in 1984, his son Edward bought the business with his siblings and took over as president. Edward spearheaded the company’s growth from a handful of local stores into a sporting goods powerhouse. The company sells athletic apparel, outerwear, sportswear, a variety of shoes, fitness equipment, and outdoor equipment. Now headquartered in Pennsylvania, Dick’s also runs two smaller franchises: its Field & Stream outdoor goods division, and Golf Galaxy for golfing supplies. Dick’s prides itself on combining small-business customer service with big-box retailer selection and values, and routinely outperforms competitors in customer service metrics such as phone and e-mail response time and delivery speed.

 

Unlike some of its competitors, Dick’s was quick to embrace the online channel and has maintained very strong e-commerce sales relative to its competitors in the sport- ing goods industry. Dick’s increased its e-commerce revenue by 40% from 2010 to 2015, whereas its competitors’ revenues increased by only 20% over that span. For most of that period, Dick’s relied on external vendors for its IT and e-commerce needs. EBay handled Dick’s back-end fulfillment processes and most aspects of their e-commerce presence for approximately 10 successful years. However, by 2015, Dick’s had grown to a size where its agreement with eBay was costing the company significant revenue. eBay collected a fixed commission on all items Dick’s sold online, no matter how big, despite the fact that expensive items cost no more for eBay to process than cheaper ones. As Dick’s e-commerce sales continued to grow, its deal with eBay was costing it more and more money. Many bigger businesses have begun migrating their e-commerce operations away from external vendors and back within the control of the company to avoid these types of expenses. Also, it can be difficult to customize pre-made software and services from external vendors. However, once in-house, companies can more easily differentiate their web presences from competitors and adjust their software and services to best suit their capabilities. Companies that reclaim their e-commerce operations also maintain easier access to their proprietary customer data. Examples of companies following this path include Target, which left Amazon Web Services to build its own e-commerce platform, and Toys ‘R’ Us, who had also used eBay Enterprise, like Dick’s. Facing pressure to slow down physical growth and reduce the high cost of maintain- ing physical real estate, and sensing the trend towards e-commerce at the expense of in-store sales, Dick’s made the difficult decision to follow suit and formulate a plan to take over its own e-commerce operations by 2017. The company’s rapidly increasing online sales gave Dick’s both the incentive and the budget to undertake the transition. Edward Stack explained that the money the company was going to recoup from no longer paying transaction commissions to eBay would pay for the temporary increase in expenditure required to build and maintain an e-commerce infrastructure. Stack estimated that the company stood to immediately save between $20 and $25 million per year, and with a total expenditure relating to the switch of about $80 million, the move would pay for itself within four years. Having control of its e-commerce operations allows Dick’s to provide better support for unique omnichannel features, such as shipping online orders from physical Dick’s stores. To that end, Dick’s has also made plans to convert its stores into distribution centers as well as traditional retail showrooms. This will increase efficiency and improve deliv- ery times, turning its perceived weakness of excessive bricks-and-mortar infrastructure into a strength. Approximately 80% of Dicks’ e-commerce orders are shipped within the geographical area of a physical store. Dick’s foresees its stores functioning not only as traditional retail showcases, but also as miniature distribution centers. In addition, cus- tomers can order online and pickup orders at local stores. Customizing its infrastructure and website capabilities to capitalize on this unusual arrangement was one of the reasons it wanted to reclaim operation of its e-commerce platform. To carry out this strategy, Dick’s began development of its e-commerce platform and integrating its existing systems in 2014. In 2015, Dick’s began moving two of its lesser

brands, Field & Stream and Golf Galaxy, onto the platform to ensure that there were no major issues with it, and continued development work. In 2017, the company plans to re-launch its flagship Dick’s Sporting Goods site on the platform. Dick’s selected IBM Websphere Commerce Suite for its e-commerce technology stack because of its emphasis on omnichannel shopping and fulfillment capability. Core com- ponents of the stack also include Apache ServiceMix service-oriented architecture, Man- hattan Associates Order Management System for supply chain management, JDA Software Group software for merchandising, allocation, and replenishment, Oracle PeopleSoft for human resource management, IBM hardware, and Cisco networking technology. Manhat- tan Associates runs Dick’s four Pittsburgh distribution centers, and JDA Software Group data is directed into a data warehouse that allows Dick’s to access real-time information from any area of their business. Specific features of the new e-commerce platform that Dick’s has prioritized include the ability to buy online and pick up items at a store, the ability to ship from or to a store, and its associate ordering system. The platform also features the ability to break down and test different pricing and marketing approaches by region, an improved search function, and better analytics capabilities. Dick’s has found that e-commerce sales double in regions where it opens new stores, and that multichannel customers spend three times as much as single-channel customers. That’s why Dick’s has focused so much on integrating physical and virtual sales and omnichannel features. Bringing all of its e-commerce infrastructure in house also gives the company better control over development cycles and speeds up its testing and implementation time frames. Dick’s has also used the mobile platform to drive brand loyalty. Dick’s uses piloting beacons, or physical sensors in stores that respond to incoming customers’ smartphones, to produce customers’ company rewards cards as they approach the store, offering promotions and other customized deals. The company has also integrated its own mobile app with popular fitness trackers like FitBit and MapMyRun to encourage its customers to live a healthy lifestyle, awarding rewards card points for consistent physical activity. The process wasn’t without risk. Installing a completely new e-commerce platform is no easy task. It involves integrating legacy systems and new systems without losing access to information, hiring a slew of new employees to manage the system, and avoid- ing implementation delays, cost overruns, outages, and other delays. Shifting much of its focus to the lower-margin online channel with extremely experienced competitors like Amazon lurking is also a challenge. Dick’s has capitalized on the failures of its competi- tors, acquiring 30 Sports Authority leases at a steep discount after its bankruptcy, as well as all of the assets of GolfSmith after it went out of business as well. Dick’s also acquired the intellectual property of both franchises, which will help it learn more about the customers of its former competitors. In 2017, Dick’s has continued its strong e-commerce growth, which it believes will allow it to avoid a similar fate. While the bankruptcies of Sports Authority, GolfSmith, and other bricks-and-mortar franchises may cause problems in the short term for Dick’s, which can’t compete with the prices of companies that are liquidating their inventories, they have also given Dick’s more market share. In 2016, e-commerce accounted for 11.9% of Dicks’ sales for the full year, or approximately $942.7 million, and 17.9% of its sales for the fourth quarter, representing a gain of 27% from its e-commerce sales in the fourth

 

quarter of 2015. Although some analysts are concerned that Dick’s will eventually suffer Sporting Goods Plans to Double E-commerce Revenue by 2017,” by Matt Lindner, Internetretailer.com, April 15, 2015; “A Slam-Dunk Year Online for Dick’s Sporting Goods,” by Don Davis, Internetretailer.com, March 3, 2015. 4.9 REVIEW KEY CONCEPTS the same fate as many of its competitors in the face of competition from Amazon, others believe that Dick’s has done more than enough to bolster its e-commerce presence to remain viable going forward. The company’s overall sales have continued to increase and are on track to exceed $8 billion in 2017, and Dick’s also plans to fully complete its e-commerce overhaul by the end of the year. Case Study Questions 1. WhydidDick’sdecidetoleaveeBayandtakeoveritsowne-commerceoperations? 2. What is Dick’s omnichannel strategy? 3. What are the three steps in Dick’s migration to its new website? 4. What are the primary benefits of Dick’s new system? Understand the questions you must ask and answer, and the steps you should take, in developing an e-commerce presence. • Questions you must ask and answer when developing an e-commerce presence include: • What is your vision and how do you hope to accomplish it? • What is your business and revenue model? • Who and where is the target audience? • What are the characteristics of the marketplace? • Where is the content coming from? • Conduct a SWOT analysis. • Develop an e-commerce presence map. • Develop a timeline. • Develop a detailed budget. Explain the process that should be followed in building an e-commerce presence. • Factors you must consider when building an e-commerce site include hardware, software, telecommunica- tions capacity, website and mobile platform design, human resources, and organizational capabilities. • The systems development life cycle (a methodology for understanding the business objectives of a system and designing an appropriate solution) for building an e-commerce website involves five major steps: • Identify the specific business objectives for the site, and then develop a list of system functionalities and information requirements. • Develop a system design specification (both logical design and physical design). • Build the site, either by in-house personnel or by outsourcing all or part of the responsibility to outside contractors

 

Test the system (unit testing, system testing, acceptance testing, A/B (split) testing, and multivariate testing). • Implement and maintain the site. • The basic business and system functionalities an e-commerce site should contain include a digital catalog, a product database, customer tracking, shopping cart/payment system, an on-site blog, a customer data- base, an ad server, a site tracking and reporting system, and an inventory management system. • Advantages of building a site in-house include the ability to change and adapt the site quickly as the mar- ket demands and the ability to build a site that does exactly what the company needs. • Disadvantages of building a site in-house include higher costs, greater risks of failure, a more time-con- suming process, and a longer staff learning curve that delays time to market. • Using design templates cuts development time, but preset templates can also limit functionality. • A similar decision is also necessary regarding outsourcing the hosting of the site versus keeping it in- house. Relying on an outside vendor places the burden of reliability on someone else in return for a monthly hosting fee. The downside is that if the site requires fast upgrades due to heavy traffic, the chosen hosting company may or may not be capable of keeping up. Reliability versus scalability is the issue in this instance. Identify and understand the major considerations involved in choosing web server and e-commerce merchant server software. • Early websites used single-tier system architecture and consisted of a single-server computer that delivered static web pages to users making requests through their browsers. The extended functionality of today’s web- sites requires the development of a multi-tiered systems architecture, which utilizes a variety of specialized web servers, as well as links to pre-existing backend or legacy corporate databases. • All e-commerce sites require basic web server software to answer requests from customers for HTML and XML pages. When choosing web server software, companies are also choosing what operating system the site will run on. Apache, which runs on the Unix system, is the market leader. • Web servers provide a host of services, including processing user HTML requests, security services, file trans- fer, a search engine, data capture, e-mail, and site management tools. • Dynamic server software allows sites to deliver dynamic content, rather than static, unchanging information. Web application server programs enable a wide range of e-commerce functionality, including creating a cus- tomer database, creating an e-mail promotional program, and accepting and processing orders, as well as many other services. • E-commerce merchant server software is another important software package that provides catalog displays, information storage and customer tracking, order taking (shopping cart), and credit card purchase process- ing. E-commerce software platforms can save time and money, but customization can significantly drive up costs. Factors to consider when choosing an e-commerce software platform include its functionality, support for different business models, visual site management tools and reporting systems, performance and scalabil- ity, connectivity to existing business systems, compliance with standards, and global and multicultural capa- bility. Understand the issues involved in choosing the most appropriate hardware for an e-commerce site. • Speed, capacity, and scalability are three of the most important considerations when selecting an operating system, and therefore the hardware that it runs on. • To evaluate how fast the site needs to be, companies need to assess the number of simultaneous users the site expects to see, the nature of their requests, the type of information requested, and the bandwidth available to the site. The answers to these questions will provide guidance regarding the processors necessary to meet customer demand. In some cases, additional processing power can increase capacity, thereby improving sys- tem speed.

 

quarter of 2015. Although some analysts are concerned that Dick’s will eventually suffer Sporting Goods Plans to Double E-commerce Revenue by 2017,” by Matt Lindner, Internetretailer.com, April 15, 2015; “A Slam-Dunk Year Online for Dick’s Sporting Goods,” by Don Davis, Internetretailer.com, March 3, 2015. 4.9 REVIEW KEY CONCEPTS the same fate as many of its competitors in the face of competition from Amazon, others believe that Dick’s has done more than enough to bolster its e-commerce presence to remain viable going forward. The company’s overall sales have continued to increase and are on track to exceed $8 billion in 2017, and Dick’s also plans to fully complete its e-commerce overhaul by the end of the year.

 

Case Study Questions

1. WhydidDick’sdecidetoleaveeBayandtakeoveritsowne-commerceoperations?
2. What is Dick’s omnichannel strategy?
3. What are the three steps in Dick’s migration to its new website?
4. What are the primary benefits of Dick’s new system? Understand the questions you must ask and answer, and the steps you should take, in developing an e-commerce presence. • Questions you must ask and answer when developing an e-commerce presence include: • What is your vision and how do you hope to accomplish it? • What is your business and revenue model? • Who and where is the target audience? • What are the characteristics of the marketplace? • Where is the content coming from? • Conduct a SWOT analysis. • Develop an e-commerce presence map. • Develop a timeline. • Develop a detailed budget. Explain the process that should be followed in building an e-commerce presence. • Factors you must consider when building an e-commerce site include hardware, software, telecommunica- tions capacity, website and mobile platform design, human resources, and organizational capabilities. • The systems development life cycle (a methodology for understanding the business objectives of a system and designing an appropriate solution) for building an e-commerce website involves five major steps: • Identify the specific business objectives for the site, and then develop a list of system functionalities and information requirements. • Develop a system design specification (both logical design and physical design). • Build the site, either by in-house personnel or by outsourcing all or part of the responsibility to outside contractors