Hey Readers,
Welcome back to the AdExchanger Commerce Media newsletter. This week, we’ll do a quick dive into a brick-and-mortar business in transition.
Academy Sports and Outdoors, a sporting goods chain founded in 1938, is trying to get trendy.
Its camping business is growing on the strength of Yeti and Stanley, a drinkware brand with a viral social media following. Pickleball is another bright spot. And Academy is pursuing deals with Hoka, a trendy running shoe brand, and also launching its first loyalty program this summer. Meanwhile, Academy is partnering with DoorDash for same-day delivery.
These are all pages from the new retail media playbook. A loyalty program is the first step to creating a retail media business. And when in-store traffic is dwindling, online distribution with platform partners like DoorDash is a key growth trigger.
But these new partnerships and initiatives also show how painful this evolution can be for retail businesses not named Walmart. When it comes to ecommerce and retail media, growth in product sales can mean a sharp reduction in a company’s profit margins.
The data drain
One heavy cost in upgrading a business for the data-driven era of shopping is an investment in technology and talent.
Academy onboarded a customer data platform one year ago, CEO Steve Lawrence told investors during an earnings call in mid-June.
Aside from the costs of implementing a new vendor and in-housing marketing expertise, these types of data-driven products are all about targeting better deals to the right customers. That’s a good thing, but it also means each sale on average has a lower margin, because discounts and loyalty bonuses eat into the profit.
Lawrence also told investors the store will shift to a more promotional calendar of events. Rather than focus on seasons, Academy will target specific shopping days or bubbles, such as July 4, Father’s Day and back-to-school shopping.
Major ad platforms, namely Google, Meta and Amazon, incentivize this approach by algorithmically favoring products that are heavily discounted for a day or two. Retailers have always promoted sales around holidays, but to grow total sales volume, Academy must discount prices and then pay to advertise its deals.
Slow Dash
Beyond algorithmic changes at the big ad platforms, there’s another double-edged sword for brick and mortars.
Although Academy is hardly the first legacy retail chain to partner with DoorDash for same-day delivery, its reticence demonstrates why these new distribution deals are a mixed blessing for traditional retailers.
Not all of Academy’s products will be listed on DoorDash, including guns and kayaks, for instance, for obvious reasons. Those were the two examples Lawrence gave to investors, but other products that are more feasible for a stranger to deliver by car or bike won’t be listed on DoorDash, either, simply because the profit margin on these items is already too low.
And to succeed on DoorDash, Academy must advertise. It’s not like people are organically opening the DoorDash app to find camping supplies or running shoes. When they do close the sale, Academy must also pay the services and delivery fee.
Not that there isn’t a benefit to the tie-up.
“When we looked at the customer overlap between their file and our file, it’s mostly accretive,” Academy EVP and CFO Carl Ford told investors. In other words, there’s little overlap between Academy’s known customer base – primarily shoppers in its credit card partner program – and DoorDash app users.
Yet to sign the brand and digital platform partnerships they need, store chains are making tough concessions on margins and valuable data.
DoorDash is only one example.
Dick’s Sporting Goods, the frontrunner ahead of Academy in sporting and outdoor goods, has deals with all of the shoe brands Academy is trying to sign – and also has early and exclusive access to Nike shoes in particular. But that’s because Nike has massively advantageous terms that pitch the deal with Dick’s in its favor.
In 2021, Nike and Dick’s merged their loyalty programs. That means exclusive deals at Dick’s can now be found in the Nike app and member portal. But Nike also disclosed later in the year that the loyalty program integration gives Nike ID-level access to shoppers on Dick’s site or in its app who purchase Nikes or even just search for the brand. Nike can target these Dick’s loyalty members to woo them to the Nike+ loyalty program.
But it’s not just outdoorsy stores like Dick’s and Academy that are making compromises on the road to data-driven and digital sales – or, put more pointedly, on the road to survival.
There is a difficult new calculus for retailers across the board where stores compete for top brand and tech platform partnerships by conceding profit margin and their precious customer data.
