Dick’s Sporting Goods (NYSE:DKS) is set to open seven new physical locations to add to its existing 725 brick-and-mortar footprint.  From Florida to Utah, these new locations will expand the company's physical presence. This defies the conventional wisdom of many analysts including Jim Cramer who said, "As for Dick's, I think you have to stay away, as it is just too hard right now to be in a bricks-and-mortar retailer selling goods that can often be found cheaper and gotten faster online." 

In other words, the thought is that Dick's needs to go "all-in" with eCommerce, and "all-out" of physical stores. This is to better compete with online powerhouses like Amazon and direct to consumer efforts by the likes of Nike. But what if I told you that Dick's is already growing eCommerce sales at a torrid pace (up 21% year-over-year last quarter) but that 80% of those eCommerce sales (counter-intuitively) occurred within reach of a physical location? Would that change the narrative at all?

The physical presence

Dick's Sporting Goods, in addition to operating over 700 of its namesake stores, also operates over 90 Golf Galaxy locations. The company was growing units 7% to 8% annually earlier this decade, but it has slowed in recent years, including this past year with unit growth just under 2%. To be sure, the company's strategy for growing revenue and earnings is not merely opening as many physical stores as it possibly can. Unit growth will be modest at best going forward. But modest unit growth doesn't mean that a physical presence is irrelevant, as we'll see in a moment.

Baseball in a baseball glove

Image Source: Getty Images.

One of the biggest changes underway inside Dick's stores is the elimination of its hunting section. This can be a polarizing topic because of the politics involved in the gun debate. But politics aside, the company's hunting sales were under-performing, so the move to eliminate the category makes sense. The move started small by removing the section from just ten stores, but the impact was so positive that the company has removed this section from 125 more stores.

Now if you eliminate an entire section from a store, you have to replace that empty space with something. And Dick's has chosen to approach this by making its stores more of an experience destination. One experience Dick's is adding is HitTrax Batting Cages. This technology will allow customers to try out baseball bats and see associated performance metrics on the screen (though it won't fix my terrible swing...).

A batting cage is an experience that only a physical store can deliver. These strategic moves contributed to the company's 3.2% comparable sales increase last quarter -- the strongest comparable sale in three years.

So what

As alluded to by Cramer, investors do fear the impact online retail has on traditional retail. So they want to see traditional companies excel with their own online sales. To that end, Dick's has steadily grown its eCommerce business over the past several years. In the second quarter, eCommerce grew 21% year-over-year and now accounts for 12% of overall sales -- over $270 million in the second quarter.

But what is interesting about Dick's eCommerce is that 80% of these sales occur within the trade area of a physical location. In other words, people within reach of a store buy online. The correlation might not be obvious at first. But consumers often chose to pick items up at a Dick's store after buying online, or chose to look at the store before later buying online. That means that Dick's physical and online presences are somewhat symbiotic. The company is smart to focus on both.

Now what

Investors would also be smart to focus on both eCommerce and the physical brick-and-mortar for Dick's. Specifically, in regards to eCommerce, I would suggest watching the growth rate. As previously noted, eCommerce grew 21% last quarter. With the holidays and Cyber Monday on deck in coming quarters, I want to see eCommerce growth to at least maintain or even accelerate. Just for comparison, eCommerce sales comprised 23% of all sales in the fourth quarter last year.

In regards to Dick's physical stores, I would suggest special attention be given to how management plans to grow the in-store experience is coming quarters. The HitTrax batting cages are a good start, but I would like to see more things like this to believe that the company is proactively keeping its stores relevant in the online age.