Guest: Jeff Gray
Topics: Hibbet Sports, e-commerce

Transcript:

Chris Ressa 0:06
This is retail retold the story of how that store ended up in your neighborhood. I’m your host, Chris ReSSA. And I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC management.

Ressa 0:26
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Ressa 0:53
information. Welcome everyone to retail retold. Today I have with us Jeff gray. Jeff is the VP of real estate for hibbett sports. He has been with hibbott for 29 years and in the real estate capacity for 20 hibbett sports is an athletic retailer that has 1100 stores is publicly traded and excited to have you Jeff, welcome to the show.

Jeff Gray 1:21
Thanks, Chris glad to be here.

Ressa 1:22
How are things inhibit what’s going on at hipot these days,

Gray 1:25
you know things are things are good things are busy, we’re still implementing a merger with a CT gear that we purchased in late 2018. So that’s taken a lot of our time, we’re evolving our company to be more of a like you said an athletic retailer, really with a focus on footwear trying to sell we call it head to toe concepts. So that’s really been our focus right now as we become more athletic and product lines changing. We still sell equipment in stores, but it’s becoming less of a percentage of what we do. But it’s keeping us busy, the same here process is really keeping us busy.

Ressa 2:03
And what’s the part that’s keeping you most busy? Is it the integration within the merger of two companies and kind of like getting rid of the duplication and the economies of scale is that is that what’s the key to that

Gray 2:16
company wide, that’s the biggest thing just really systems is probably the thing that our companies having to spend the most time we’re dealing with two totally different operating systems, we will you know, bring all of their people here internal into our office starting first of, of 2020. So we’re still running two offices right now. And then just real estate for us, we’re just trying to get caught up and, you know, incorporate all of their laces that we have expiration dates, things like that, and then really just trying to grow the chain. You know, they were opening five and six stores a year really because of money. And you know, that was one of the big things for us is we’ve got the cash. So we’d like to grow them at a faster pace. So it’s just getting everybody and up so we can open additional stores, you know, going forward?

Ressa 3:07
How many? How many hipot and city gear stores? Did you guys say you would open this this year or next year or anything like that?

Gray 3:14
Well, next year, you know, we’re trying to open 20 City gear stores, we’d like to open 15 hibbott. So, you know, 30 to 30 to 35 between the two concepts.

Ressa 3:26
What was like the the how big of a chain is city here?

Gray 3:31
They had 138 stores? I think when we bought them. Wow. So layer 150 right now.

Ressa 3:41
So sizable chain. Yeah, what was the catalyst for you guys to look at that, you know, you guys have had pretty strong organic growth over the years by, you know, opening stores one at a time in brick and mortar locations. What was the catalyst for buying another chain?

Gray 3:59
Well, you know, we, as we’ve moved to more of a footwear based company, you know, we were really just looking at people out there that did that. And they were the perfect size we’re not you know, you start getting in a bear account of you know, much bigger company than that it’s really hard to integrate it but they were a good size, great volume stores, you know, they were just having problems growing really because of capital. So they needed somebody to throw capital at them. We were looking for somebody to kind of help us, you know, really learn about that footwear concept. And that’s that’s all they do to their their football and apparel. But, you know, they’re really focused on that fashion urban customer, you know, more CD specialty, and you know, we had moved a lot of our stores to that as well. So it was just a great fit to add, you know, to add almost 250 stores just right off the top. So what we had,

Ressa 4:52
when did you guys close on that transaction?

Gray 4:55
October of 2018

Ressa 4:57
Is it is it what you guys hoped it would be? Is it better to meet expectations?

Gray 5:02
Yeah, no, it’s been really good, we’re real pleased with it. And their sales have been good, we’ll actually have them to our comp store base in fourth quarter. So we’re expecting some, some good things from there’s some things that they lacked, that we really could help them with. And there were things that they did better than us that we’re, you know, we can incorporate into our, you know, 1000 stores as well.

Ressa 5:25
That’s the dream synergistic scenario. So that’s, that’s really awesome. How are you guys finding? I guess, with both concepts, how are you guys finding, you know, ecommerce these days and the competition,

Gray 5:37
we launched our own e commerce about two and a half years ago, and you know, it’s quickly become about 10% of our business. So it is a big part of athletics, big part of sporting goods, people use E commerce to buy a lot of the things we sell. But what we’re learning is based off of, you know, launch products, this, you know, this Jordans things that customers want tomorrow. And, you know, they kind of enjoy waiting in line to get them, you got to do the lottery, you know, yesterday, we have an online website, or our, our app that you can actually, you know, you’re able to be part of the lottery, because stores only get so many of these shoes. So Nike requires us to kind of do a lottery to void. So you know, 300 people in line for 20 pair of shoes, those customers are really more breaking more so. And those are mostly cash customers as well. So we’re really been able to with our online, we can, you know, coordinate to customers, and it’s working really well. And we’re trying to incorporate everything we do online, we try to do things that draw people back to the store. So you know, our big things that we’ve done this year is, you know, focus and repurpose, which is buy online, pick up in store, reserve online, pick up in store. And that’s been a huge part of our business is people buying it online, or coming to the store to pick it up. Majority of our returns, go back to our stores, which is a good thing as well. So you get that customer back in the store. So hopefully, long term may becomes a big part of what we do. And it helps helps our brick and mortar store.

Ressa 7:12
Are you finding like a lot of retailers I speak to, when you open a store in a market, your online sales in that market increase when you close the store in a market, your online sales in that market decrease.

Gray 7:24
We haven’t seen a lot of decreases, willing to close stores, you know, are large, and it’s funny for us, our largest areas of online sales are New York City, and LA. And I know part of that it’s just pure population. But we have no stores and either one of those markets. So a lot of it is driven by the product. You know, we are getting hotline, you know, launch product, top line things that customers want. And it’s just showing up on the Google searches. So we do it, it does increase when we open a store to market and there’s no question about that. But we haven’t really seen that decreases when we close.

Ressa 8:00
That’s pretty good Google search optimization team you guys have if you have no stores in the market, and you’re getting customers in New York and LA. So

Gray 8:08
that was that was one of their big focuses when we did this, because, you know, it’s pure population. And if you know if you can drive to those areas, it really help helps business and we’ve been surprised by it as well.

Ressa 8:21
Do you think that I’ll ever mean you get into those markets? I know you guys aren’t in those markets from a brick and mortar presence.

Gray 8:27
You know, I mean, you know, we’re in California, we’re in the state of New York. You know, you know, I think there’s, there’s chances of us getting into getting close to those markets. I don’t know that we’re gonna be in Manhattan anytime soon. But you know, some of the outside boroughs of New York, that wouldn’t surprise me in the long term, not something we’re necessarily looking at right now. We’re still trying to focus on, you know, markets that need us. markets really don’t have a lot of competition. And that’s hard to do in LA in New York City.

Ressa 8:59
Totally. One of the things you mentioned was the cash customer, do you do you still have a large consumer that’s cash based?

Gray 9:08
Oh, yeah, it’s very large. Data gear is even larger than inhibit. So we’re shocked by how large it is. But yeah, we have a large cash flow business.

Ressa 9:20
Interesting. Does a lot of the competition have cash customers like you?

Gray 9:24
I think that’s kind of standard in you know, some of the products we sell tickets some of the markets we go to, you know, it’s pretty big and athlete, I don’t know, the average, you know, across the, you know, the concept, but I assume it’s pretty big everywhere. Interesting.

Ressa 9:39
Well, I appreciate the insight. That’s good context for anybody who doesn’t know hibbett Or city gear, but I got their website up now guys, and if you haven’t gone, you should go check it out. They got some awesome products on there. So, Jeff, today we’re going to talk about a store in Lewisville, Mississippi. Why? Actually Tell us how that that store ended up being a store.

Gray 10:04
Yeah, it’s a, it’s pretty interesting story. Lewisville, if you’re not familiar with Mississippi is, is a small town, it’s probably about an hour northeast of Jackson, Mississippi, kind of between Jackson and Columbus, Mississippi. So we opened the store in 2013. And at the time, I’m still still a little bit, you know, we’re really focused on small markets that really just had a need for a place to buy shoes a place to buy sporting equipment, it’s a place to buy clothing. And, and we’re very successful in Mississippi, we have, oh, I’m kind of thing we have about 60 stores in the state of Mississippi. And that’s what a pretty small, you know, population by so this is one of our best states. So we’re, you know, we’re looking for stores all over Mississippi as much as we could, I mean, we couldn’t find markets that were really too small, we just do one, it would work. You go find the next one, it may even be a little smaller, it would typically work. And we kind of had opened a lot of stores in the general area of Louis, we didn’t have a store in that market. And we got a call one day from just from a local owner there that owned, he owned a building. It was a closed grocery store that was right next door to the relatively new Walmart Supercenter. So obviously Walmart opened this local grocery store, just, you know, couldn’t make it, they went out of business. And this guy had just been driving around, you know, Mississippi and insane our stores and other areas. So he called said, hey, you know, I’ve got this, you know, grocery store that I’m thinking about cutting up, you know, would have it have interest in coming to this market. So, we’ve not spent a lot of time and Lewisville up until then. So we you know, we got in the car, it’s only a couple hours from here in Birmingham, drove over, looked at the market, you know, did a little bit of market research, and determined how, you know, this might be a market that could work. It was small. There weren’t a lot of other retailers there. But you know, they had a Walmart. So we said, hey, yeah, you know, we think we can do this. So typically, when we start doing these deals, they’ll take a month, two months to kind of work through the process of you know, getting everything negotiated, and then you kind of get to lace. Well, this guy was he was excited that we were interested. He owned his own, you know, he owned the belt, and he owned his own construction company. And he said, Hey, you know, if we can get this job done, we can get you guys open, quick. We worked through an LOI, it was relatively easy. So tell him, hey, we’ll send you lace on our lace form. Basically, I play you know, send the lace. So we sent it to him. And he has it for about a week. And then he

Ressa 12:45
and and this isn’t a guy and sorry to interrupt. But this isn’t a guy who’s like a lot of your other landlords that owns multiple properties has gone done a million commercial leases. This isn’t that guy, right?

Gray 12:59
He owns, you know, he owns this building. And he may have some other stuff. But it’s all in Louis, but we’ve never dealt with him before. And you know, obviously had a little bit of experience because he had dealt with the grocery store. He was really all on a local level. Got it. So we sent him to lace. He keeps it for about a week. And I started I don’t hear from him. So I started getting a little bit nervous. So I call Him and He says, Yeah, I got the lace. What are you doing tomorrow? I want to come over to Birmingham and talk to you about it. Now so I’m like, Oh, God, we scared this guy off. He’s just gonna kill the day or whatever. So awesome. Yeah, by all means, come over. And we get very few landlords that, you know, they come to the office, particularly on the first round of comments and Elise, but he came over we met with him. We talked for a few minutes, we’re talking more about his family and our family and, and things like that. And, and he finally says, Jeff, I want to get to cut to the chase on this. Rapid will people like you guys, I’m gonna sign this lease, as long as you promise me, there’s no, there’s no gotchas in it. And I really didn’t know what to say. Obviously, we feel like our lease is fair to us. And you know, and the landlord, but I told him, I said, Hey, I promise you there’s nothing in there that we’re going to try to, you know, try to get you if we feel comfortable with it. And he said, All right. And he sat down and got a piano. He signed that lease right there. Oh, my God, he opened six months later, and still open to this day and Lewisville and I don’t know that we’ve ever had a issue at all at this point. So you know, I was terrified that we’d get to that first kick out date, we wouldn’t make the number I’d have to call that guy and say we were going to kick out or need a rate reduction or something. But luckily for us, it’s been a pretty successful store. And we hadn’t had to do that. But the only time I’ve had that happen,

Ressa 14:48
and so when when you say kick out You mean for those who don’t know in your lease after a certain time period if you don’t reach the sales volume that you might have projected you You have the right to terminate the lease, right? Yeah. That is fascinating. Because all we ever talked about in the industry today is with the advent of technology, how long deals take, right. We used to mail leases back and forth for comments in the actual mail. And it was faster than some deals take today. They take so long, the commercial leases, some of them are over 100 pages today. And so you and I go through the lease, you have your attorneys and paralegals, and I have my attorneys and paralegals, and were clobbering through them. Hopefully now we have a conformably. So we don’t, we’ve gone through a lot of the heartache and pain. But you know, for those who don’t know, they’re, you know, getting one done typically involves a lot of people. And so having a guy just show up and sign the lease is definitely fascinating. Especially, you know, that’s the stories you hear about in the 1960s and 70s. But not in 2013. You know, that good old boy kind of on a handshake agreement? I wonder? I wonder if he even read that lease, Jeff?

Gray 16:02
No, I don’t like I don’t think he read it. I think he wanted to come to the office that day. So he could look me in the eye. Because, you know, he could call me and say I’m gonna sign this lease, there’s no issues. I think he wanted to look me in the eye and have me, you know, tell him that, you know, that we were it was a good lace, you know, so yeah, I don’t have I’m pretty sure he didn’t read the lace like said we’ve had no issues, you know, either side, and I’m thankful for that. And it does take you back to a whole different time. You know, handshakes and you know, you would start working spaces on a handshake agreement or whatever, that you’re, you’re terrified of everything and you won’t be in a written down and paper you’re not going to, you know, in today’s world,

Ressa 16:41
was he required to build out your space?

Gray 16:45
Yeah, he had a he had a construction company. And yeah, he built out the space. So you could have

Ressa 16:51
put in the lease that he was having to build the Taj Mahal, and he wouldn’t.

Gray 16:58
We could have had anything in that lease. I mean, I mean, luckily, you know, we feel like we’re very rational, you know, we put in the lease what was in the loi, which he had read, you know, he had, we have a pretty detailed letter of intent. And we had went through that with him. So, you know, he understood what was supposed to been in the work exhibit, he understood what was supposed to be rent and things like that. But you know, a lot of just the lease language, you know, the default language, the quiet enjoyment, language, things like that. He trusted us on that.

Ressa 17:31
Good for him. Fascinating. How fast did you guys sign it?

Gray 17:34
We I took it to the mob boss, as soon as he laughed, and we got it signed that afternoon.

Ressa 17:41
Where they were they flabbergasted? They asked,

Gray 17:45
sure. Just happened. So yeah, you know, we have laces now that take six, eight months to get signed, that one took a week. And that was just so he could get over there.

Ressa 17:56
That is incredible. You know what, though, that that got your point, which is interesting, because it’s powerful when someone looks you in the eye and just puts all their trust in you and asks you to give them their word, your word that is sometimes powerful than something more powerful than some of the things in negotiation. And for him to say, I have one question, there’s no gotchas in this lease, right? And really put you on the spot. And like you said, you had to really think through it, because you’re going the way you’re going as being a business man for so long as like, well, we’re a reputable company. I think it’s a fair lease. But, you know, could one perceive this as a gotcha. It’s not meant to be a gotcha, but you might perceive it. And that’s probably what’s going through your head is he’s asking you that question.

Gray 18:41
Oh, definitely. Definitely. I’m trying to think, what do I need to tell him right now that could come up in the future. But like I said, we’ve had no issue. So luckily, you know, knock on wood. Were there 10 more years, and we don’t have any issue?

Ressa 18:55
Well, that’s fantastic. Jeff, it was a great story. I really appreciate the color on what’s going on with hibbott. And what’s going on with Citi gear, you know, that in itself is the story of a deal. That deal you made with those guys going back to that for a second, how involved in your role did you get in the merger and acquisition? Did they have you on some project or special task force?

Gray 19:19
We did, we did some research on just store locations and things like that, and just really trying to figure out, you know, how much overlap there was, and, and things like that, you know, they had to keep really, really quiet, very limited on what we got. And when we got it, you know, we didn’t from a real estate aspect. I didn’t really know how serious we were, as I was doing this research. I knew that something possibly was happening, but most of ours was just really just, you know, where do we overlap stores? How well do we do in the St Mark case and things like that.

Ressa 19:50
And so but eventually you had to tell the street what was going on, right? Yeah. Oh, yeah. Yeah. How big of a transaction. I don’t know if it’s public. How big of a transaction was that? Adding dollar dollar figures,

Gray 20:02
it was pretty big. I mean, and I don’t know, I don’t have specific numbers in front of me. But it was a very unique way the transaction work, they wanted one price for the product, you know, there, they were private, they wanted one price for the, for the sale, we obviously wanted to pay them last. And we ended up with a with a process and we paid him out. And then we basically did a two year you know, if they get starting certain numbers and certain parameters, they’ll get some additional money. And then also, you know, incentivize their management team to stay on board. So they’re, they’re all right at that point, Mike Longo is still involved through this two year period. And it’s really pushed those guys to do the best thing and, you know, continue to, you know, to improve the company and grow it.

Ressa 20:48
Fantastic. Well, listen, Jeff, I really appreciate the time here. I have three questions for you. We call this retail wisdom. It’s our last three questions. First one best piece of commercial real estate advice for the listeners out there.

Gray 21:04
You know, and I say this to all of my guys from a Hiram and anybody else is, it’s just really be prepared, you know, have all the information in front of you before you, you reach out to a landlord or a landlord reach out to a tenant, you know, Nothing’s worse than somebody calling you about a side and you closing that center two years before or you have a store across the street, or you ask them is there competition in the market and they don’t know it. So I just tell my guys just be prepared, it makes the whole conversation a whole lot easier. If you have as much of the information as possible. When you make that first phone call, it makes everybody more comfortable, more believable, and you kind of get down to the you know, I can give you a real quick answer. If you call me about a site, if you can answer three questions for me, typically, I can typically tell you if we have interest or not, and save everybody a lot of time. What are those three questions, whereas the competition, you know, our now just because we’re starting to deal with different store formats is really just the basic demographics, you know, the income race population. And then, you know, for me, a lot of centers where people with explosives is always the hydrogen by having explosive in the shopping center. You don’t know how many times we get well in the process. And I say, Oh, I forgot. But you know, one of the other shoe guys has an exclusive you guys can’t come in and we’ve wasted time.

Ressa 22:31
Understood. I know how that goes. I know how that goes all too. Well. Second question. Extinct retailer you wish would come back from the dead?

Gray 22:43
Well, there’s a lot of them. You know, the first one it comes off my mind is Service Merchandise. As a kid, we would have I came from a very small town in Alabama Roanoke, ROA aro A and O ke Alabama, almost in Georgia. And we would have to drive, you know, an hour to get to a Service Merchandise, but just going into those stores and watching that product come down that conveyor belt as a kid. That was the coolest thing ever. They should bring the conveyor belt back to a lot of places, but I really miss go into Service Merchandise.

Ressa 23:17
That’s awesome. I think a lot of people do actually I think that’s you know, for a generation that was a fantastic store. So yeah. Last question. Given the shows about retail, going to throw you for a loop here, Jeff, we’d like to ask our guests to guess the retail price on a certain from a certain retailer of a certain certain product. So amazon.com is selling from cook to cook soup dogs cookbook celebrity cookbook with his soul food recipes. What is the retail price on Amazon?

Gray 23:57
Snoop Dogg Got a cookbook. Oh, gosh. It can’t be that big. You know, for any dollar 19 Any man you went

Ressa 24:10
over 1487 for the new book to cook cookbook. That’s a deal. I can’t imagine the recipes in here. They must be fascinating. So anyway, Jeff, it’s been a pleasure. I really appreciate you coming on. Have a great holiday and enjoy with your family and I really hope it ticks spot this Christmas season. All right,

Gray 24:35
thanks, Chris. I really enjoyed him and have allies you guys as well.

Ressa 24:41
Thank you for listening to retail retold. If you want to share a story about a retail real estate deal you were a part of on our show. Please reach out to us. This podcast highlights the stories behind deals from all perspectives. So it doesn’t matter if you’re a retailer, broker attorney or an architect, contact Diane Lee At D L E at DLC mgmt.com Also don’t forget to subscribe to retail retold so you don’t miss out on next Thursday’s episode