In a changing retail fitness landscape, Precor (www.precor.com) will increase the distribution of some of its treadmills and ellipticals through Dick’s Sporting Goods, in conjunction with lowering prices on those cross-over products for all dealers.
Officials at the Woodinville, Wash.-based fitness equipment company provided SNEWS with an inside look at the shift in retail strategy, and why they believe both sporting goods and specialty retailers can coexist.
Precor isn’t alone in its efforts to meld distribution channels; Life Fitness took similar steps in early 2009 and other companies are hinting at the same direction. It’s a significant retail strategy shift from these previously exclusive specialty names. The idea is to increase brand awareness with a taste of their products at larger sporting goods stores, whetting the appetite of consumers, and driving them potentially to seek the full line of products at specialty retailers with perhaps more personalized customer service.
Lower prices, more stores
Precor’s distribution and pricing changes will take effect Oct. 24, 2011, said Doug Johns, vice president, global marketing and product management.
Precor, a subsidiary of Finland-based Amer Sports (HEL:AMEAS), will increase the distribution of its 9.23 (photo, right) and 9.27 treadmills to all 450-plus Dick’s Sporting Goods stores, and sell its 5.21 and 5.23 (photo, below) ellipticals in a yet-to-be determined number of the national retailer’s top performing stores. Precor has been testing the distribution expansion in about 100 Dick’s stores since spring 2011.
The four products represent Precor’s most affordable models in treadmills and ellipticals, but the equipment (previously available at $2,199-$2,999, MAP) was still priced too high for the typical sporting goods customer, Johns told SNEWS. To drive sales volume at Dick’s, the company needed to lower its prices.
“We feel the threshold for those buyers (at Dick’s) is at $2,000,” he said.
In addition, specialty retailers had voiced concern that Precor was being squeezed out by other manufacturers at the below-$2,000 price point – lately more popular with consumers looking to spend less in the still-struggling economy.
“As good as they are, they were out of the competitive price range,” said Carlos Vazquez, president and owner of Busy Body/Gyms To Go (www.gymstogo.com), which has eight stores in Florida and one in Georgia, and is a long-time Precor dealer. “That $1,500 to $2,000 range is selling well, and Precor just wasn’t there.” Vazquez told SNEWS he had been decreasing his orders of those models because of the previous higher prices.
Precor felt the pressure from both retail fronts, Johns said. But the company didn’t want to lower quality and come out with a less-expensive model just to compete on price. Precor tried that many years ago, according to Vazquez, and it didn’t work. Company officials debated if they could trade lower margins for higher volume, he explained. In an early 2011 test run, in conjunction with its retailers, Precor lowered the MAP of its 9.23 treadmill from $2,649 to $2,199 and its 9.27 treadmill from $2,999 to $2,649. It worked, Johns said. Precor saw sales of the 9.23 and 9.27 treadmills increase by 50 percent versus the previous year, outpacing its other models, which grew in sales too.
That test set the stage for the pending price drops. On Oct. 24, Precor will debut the new MAP pricing:
>> The 9.23 treadmill drops from $2,199 to $1,599 (down $600)
>> The 9.27 treadmill drops from $2,649 to $1,999 (down $650)
>> The 5.21 elliptical drops from $2,199 to $1,599 (down $600)
>> The 5.23 elliptical drops from $2,599 to $1,999 (down $600)
The lower prices will decrease individual sale margins for both the company and retailer, Johns said, but the hope is that increased volume will increase overall margins. Johns couldn’t estimate the break-even point for retailers, as their purchase price from Precor varies on volume.
“This is all based on expecting a higher volume of sales,” Johns told SNEWS “The distribution through Dick’s is what is allowing us to offer these lower prices to specialty retailers. It’s the first time Precor treadmills have been under $2,000 (MAP) in more than a decade.”
There will be no changes in quality or manufacturing on the new 2012 models to achieve the lower prices, Johns said. In fact, the two treadmills will be upgraded to include the company’s patented cushioning system found on its higher-end and commercial models. The ellipticals will remain exactly the same.
Precor’s strategy is already gaining traction among some of its dealers.
“Now that they’re competitive, and are maintaining quality, we’re increasing Precor’s floor space, Vazquez told SNEWS. “At these new price points, they’ll get more placements.”
Other retailers agreed that changes are needed, but they’ll wait to see if the latest strategies bring results. With specialty retail shrinking, the industry has to pursue different strategies to be successful, said Todd Ibis, chief operating officer at Push Pedal Pull (www.pushpedalpull.com) with 10 stores across Nebraska, Iowa, Oklahoma, North Dakota, South Dakota and Tennessee.
“I like the increased awareness of the brand, as long as it continues to bring traffic to us,” he said. “Hopefully, a customer works out on a Precor in a club, sees it at Dick’s while buying a baseball glove, then does more research on the Internet and finds a specialty retailer.”
The sporting goods / specialty retail connection
Precor got its first feel for multi-channel distribution between sporting goods and specialty retail in late 2008, when it partnered with Sports Chalet’s 55 stores to sell its equipment in California, Arizona and Nevada.
The decision came after Precor’s top specialty retailer in the area, Fitness Holding International’s Busy Body stores, filed for bankruptcy in October 2008. The eventual liquidation of those stores left a large void in Precor’s West Coast distribution, forcing an unexpected foray into sporting goods, Johns said, but it served as a good test.
Other fitness equipment brands, such as Life Fitness, also made broad strategic changes during the economic downturn and store closings. (Click here to see a SNEWS’ experience while shopping for Precor at Sports Chalet and Life Fitness at Dick’s).
In the years since, it’s been a learning process for suppliers on how to build brand awareness, while trying to keep traffic up at specialty retailers. After launching with Dick’s in 2008, Life Fitness has continued exploring the strategy with various forms of non-exclusive retail deals, adding and changing partners along the way.
Precor continues to adjust and learn as well, staying with Sport Chalet out West, but also expanding with specialty retail there.
“Over time, we’ve opened with specialty retailers in Sport Chalet’s territory, Johns said. “The highest performing Precor specialty store is in the San Francisco area, which is the heart of Sport Chalet. We’ve shown, at least in California, that a sporting goods retailer and a specialty retailer can coexist and both succeed.”
The reason it can work, according to Johns and several specialty retailers we spoke to, is a combination of increased brand awareness through sporting goods stores and better customer service at specialty retailers.
“If anything it will push the brand more,” Vazquez said. “At least we can now compete with Dick’s on that price point, and we will beat them every time on customer service. Do I think we’ll lose a sale to Dick’s? Probably, but it won’t be the norm, I think it will be the exception.”
At Colorado Home Fitness (www.coloradohomefitness.com), owner Chip Hunnings said the extra exposure of Precor could help sales of brand at his two stores in the Denver metro area. “The consumer will see a Precor product at Dick’s and want more selection and service, so they’ll seek out a specialty retailer. When you get the cross shopper who goes to Dick’s and then comes to us, we’ll be able to win those deals with consumers.”
To help out specialty retailers still harboring some skepticism, Precor is offering consumers an additional free two-year warranty on parts on its equipment purchased exclusively at specialty retailers. That’s on top of Precor’s regular five-year parts warranty for import models, and 10-year parts warranty for its higher-end U.S.-made products. All its products have a one-year warranty on labor. Johns said Precor doesn’t plan any extra advertising, but suspects specialty retailers will tout the advantages.
“We’ll be matching prices (with Dick’s),” Ibis said. “Why wouldn’t a customer want the extra warranty and the piece of mind of product expertise and customer service.”
Hunnings said it’s “wait and see” to determine how things shake out. During Precor’s trial run with Dick’s this spring, Hunnings said he’d seen no heavy discounting by the sporting goods retailer. All Precor dealers, including Dick’s, must stick to the company’s MAP pricing, unable to advertise below that level – although any retailer can still make the sale for less on the spot.
Hunnings said his biggest concern is if Precor were to expand its line offered at Dick’s beyond the four models. Although that is something Precor has tested with Sports Chalet – the sporting goods retailer carries a full line of Precor equipment since it replaced the specialty retail distribution out West – that won’t be the case at Dick’s, Johns said. The latest move is just an expansion to a multi-channel, select, non-exclusive strategy.
“If we’re going to have a multi-channel distribution model, we must remain disciplined with our offerings between sporting goods and specialty retail” Johns told SNEWS.
Precor’s strategy -- no surprise -- is to increase the brand’s sales in North America, but Johns declined to reveal any specific goals for the company. Precor accounts for 15 percent of Amer’s total sales. The parent company, which is publically traded on its home market in Helsinki, Finland, reported its North American fitness sales rising – up 14 percent in dollars for the second quarter 2011. The increase of Precor sales is being led on the commercial side, and the home product market is up too, Johns said.
The trouble for Amer is that it deals in euros, and a weak dollar makes for a poor exchange rate. That 14-percent increase for fitness in North America translated into a 2-percent decline in euros for the second quarter. Worldwide, the Amer’s fitness group was up 9 percent in local currencies, but down 3 percent in euros.
If the dollar remains weak against the euro, Precor will have to increase sales further to keep investors happy. Company officials see the part of the solution through its distribution and pricing changes coming Oct. 24.
It’s the reality of a rapidly changing specialty retail market, Vazquez said.
“If you were to ask us a few years ago if this was a good idea, I think we’d all be a little scared,” Vazquez said. “But with specialty a lot weaker today than it was then, we both (retailers and manufacturers) need to bring in more volume to survive.”