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This new competitor may shake up the sporting apparel business

Online retailer Catch Group, which operates such sites as catchoftheday.com.au and scoopon.com.au, for daily discount deals, as well offering home grocery and food delivery, has announced that it wants to develop a sporting apparel business.

Sales of fashion and footwear has become its top category, and the company is planning to start a special retail offering in early 2014. It has the financial backing of a US hedge fund, an investment group, as well as individuals James Packer and Seek (ASX: SEK) CEO Andrew Bassat, so funding will probably not be a problem.

This new entrant could cause industry profit margins to thin out because similar to its other websites, the focus will be on giving the lowest price, and trying to drive traffic through sales discounts.

Two players already in this retail area are Super Retail Group (ASX: SUL), which owns Rebel Sport and Amart Sports, and Kathmandu (ASX: KMD), which sells outdoor activities equipment and apparel.

In 2013, Super Retail Group’s sports goods business segment had $704.7 million in revenue, roughly a third of its total group revenue.  It is the market share leader with 21.4% of the sporting and camping equipment retailing industry, according to IBISWorld. It has its own outdoor and leisure websites, and this past year saw a 50% increase in site visitor traffic.

The company in general has been strongly growing both sales and earnings, doubling both since 2010 through organic growth and acquisitions in camping/outdoor equipment as well as the 2012 purchase of the two sporting goods franchises.

Kathmandu’s Australia and NZ sales together were $313 million. It holds about 2% of the same retail industry, and about 4% of total sales come from online orders. It has operated a products website since 2008, and manufactures many of its own products, giving it a strong brand name that customers develop a loyalty to.

Its return on equity has been on average about 12.5%, and net profit margin has been consistently over 10% — it’s currently now at 11.5%. Earnings have been growing steadily, and in a very fragmented market, there is space to grow further.

Foolish takeaway

The current big names in this retail space have their own online sales sites, and if they can connect the store visiting experience well with the internet traffic, then one can complement the other. Pure online retail companies have the advantage of not having to cover the cost of physical stores, so their costs can be lower for the same amount of profit.

This new entrant will put some pressure on the sales of the others, but until it starts it is hard to say to what effect. If it does cause a lot of disruption, then Super Retail Group would be in a better position because it is more diversified than Kathmandu.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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