SBJ/August 13 - 19, 2007/SBJ In Depth

E-commerce specialist GSI a hit online

GSI Commerce is the biggest sports retailer most consumers have never heard of. Yet anyone who has ordered online from one of the top-five league sites, most major sporting goods specialty retailers and e-commerce sites, or purchased electronically from top sports brands including Adidas, Reebok, Rawlings and Timberland, has ordered from GSI.

The e-commerce specialist totals around $1.7 billion in merchandise sales for its clients from an aggregation of 60 different sites. The addition of the NBA’s e-commerce contract in June (wrested from Amazon, which spent most of its resources building an online brand) gave GSI a clean sweep. It now is the virtual vendor of choice for the traditional Big Four stick-and-ball sports and NASCAR.

Some of the biggest sporting goods specialty retailers are under GSI’s e-commerce umbrella, including such names as The Sports Authority, Dick’s Sporting Goods, Modell’s and G.I. Joe’s.

Michael Rubin, chairman, president and CEO of GSI, has been around sporting goods since he opened a ski shop in a mall when he was 14. Rubin’s epiphany came when, after years of trying to make a dent in the athletic apparel market with third-tier brands like Ryka and Yukon, he found out how much it was going to cost for someone else to build out his e-commerce.

Suppliers such as Levi Strauss were the ones that profited most from the California Gold Rush. Rather than panning directly for Internet gold, Rubin leveraged the outsourcing trend — supplying the picks and shovels.

“There were lots of people trying to build sports brands on the Web [MVP.com is a notable example]. Michael saw early that the opportunity was being the Web backbone to established brands,” said Sal LaRocca, executive vice president of global merchandising at the NBA.

Online commerce represents less than 10 percent of NBA licensed sales. With the help of GSI and the overall growth of e-commerce, LaRocca’s hoping the league can increase that figure to 25 percent.

GSI Commerce totals around $1.7 billion in
online merchandise sales for clients ranging
from top sports properties to retailers.

“Right away I saw there was an opportunity to be the leader,” Rubin said, “and I knew I was never going to be Nike or Adidas in the footwear business I was in.”

The concept is relatively simple and it’s one that fueled the original Internet bubble: size matters. Thus, the business plan Rubin sketched out on a Caribbean beach in early 1999 isn’t vastly different from the one that’s attracted nonsports clients such as GNC, Estee Lauder and Linens N Things.

“With our scale, we could conceivably have one particular pair of size 9 sneakers left, but they can be for sale on every sports site we are operating,” said Bob Liewald, executive vice president at GSI. Liewald is a former Foot Locker and Fila executive and one of the architects of GSI’s e-commerce business.

Earnings have been slower than sales growth at the King of Prussia, Pa.-based company, with Rubin steadfastly opting for reinvestment and scale over profit. Equity sales to well-heeled investors Softbank and a jointly owned QVC/Comcast company allowed further infrastructure investments.

In 2006, GSI earned $53.7 million on sales of $609.5 million. GSI is predicting net income for 2007 of $41.3 million to $42.5 million on net sales between $721 million and $751 million.

The league and sports retail sites are complementary. Dick’s or The Sports Authority could never afford to stock as much licensed merchandise as NFL, MLB, NHL, MLB or NASCAR.com can and must. The result of having them all housed under the same virtual roof is that DicksSportingGoods.com can have as wide an assortment of, say, San Jose Sharks products as does NHL.com.

“GSI’s invested more in technology than any of us would individually and they are just great operators,” said NHL licensing czar Brian Jennings. “When it comes to online commerce, [Rubin] is the only person I would call a visionary.”

Rubin says he learned quickly about e-commerce what everyone in brick-and-mortar retail knows — “it’s all about detail.” Pressed for an example, Rubin noted that 25 percent to 30 percent of GSI’s league e-commerce sales are prompted by online advertising at large sites like Yahoo, Google or MSN.

“Under the old mode [pre-GSI] they did virtually no online advertising,” Rubin said.

Given Rubin’s background, his company was founded in 1999 to serve retailers like The Sports Authority, Dunham’s, SportsChalet and the Athlete’s Foot. Now, sports is still the biggest vertical and accounts for about a third of GSI’s $1.7 billion in annual merchandise sales, with diverse brands such as Toys R Us, Polo and Palm accounting for the rest of revenue.

With the ever-increasing amount of Web commerce, Rubin thinks the sports business alone could be a billion dollars in five to seven years. With the addition of the NBA, the league business alone should total around $350 million next year. Further down the line, $1 billion in combined sales for the league sites alone is not out of the question, Rubin says. As proof, without revealing specific figures, he says that in the first year of fulfilling the NFL’s e-commerce, the league’s online sales doubled; sales had been flat several years prior.

“What I like about GSI is that they don’t wait for business to come to them. They go out and chase it,” said Leo Kane, the NFL’s vice president of licensing and consumer projects. Advertising on other sites, designing search engines for shopping, and e-mail marketing are among GSI’s marketing service offerings.

GSI sees Internet marketing services as one of its key growth drivers. The company already has 150 employees working in that division. Rubin says the division now yields around $30 million annually in revenue; long term, he’s forecasting it as an opportunity worth several hundred million dollars. “Our partners spend $5 billion in offline advertising and maybe $150 million in online ads,” Rubin said. “Ultimately there will be a major shift of dollars from offline to online.”

Overseas opportunities, college sports and servicing the hot markets that are the lifeblood of sports licensing are other growth areas targeted by GSI. There’s also that two-thirds of sales that don’t come from sports. GSI changed its name from Global Sports in 2002 to avoid being branded solely as a sports company. Still, Rubin can’t resist the occasional sports analogy.

“There’s so much growth left in e-commerce,” Rubin said. “If this were a baseball game, we’d probably be in the second inning.”

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