Competitive Advantages

Pioneering in the development of omni-channel platform with the integration of operations

Over the last three years, Company has developed its omni-channel platform, a proprietary technological infrastructure solution that has allowed it to integrate physical and digital sales channels and inventories. These efforts have enabled the Company to develop a digital platform and physical stores as complementary sales channels that, when integrated, provide customers with a differentiated purchasing experience and a higher level of service through an increase in the supply of available products, reduced freight costs and delivery times and also provide it with more sustainable growth through the optimization of logistics costs and inventory turnover.  The omni-channel business model also provides it with operational leverage as the additional revenue Company generates is not necessarily linked to the proportional increase in expenses, thereby increasing the profitability of operations.

Through the integration of sales channels, one of the main solutions that Company offers to customers is Click & Collect, which enables customers to purchase products through digital platform and retrieve the product from a physical stores of their choice. If the product is not immediately available at the desired physical store, it is then sent from another physical store or distribution hub allowing the customer to retrieve it at his or her convenience. Company also offers its customers Ship from Store, which enables customers to purchase products on digital platform that thereafter detects the physical store or distribution center closest to the customer’s shipping address with the available product, reducing delivery time and increasing the product assortment available to customers.  In, 2018, Click & Collect accounted for 21.2% of Company’s sales volume (compared to 9.1% in 2017) and Ship from Store represented 16.1% of sales volume in 2018 (compared to 2.9% in 2017).

Taking into account all transactions made through omni-channel platform over the last two years, sales in 2018 and 2017 from the omni-channel platform accounted for 37.3% and 12.1%, respectively, of total sales volume generated by digital platform.  The following graph provides a breakdown of the sales volume on Company’s digital platform in 2017 and 2018:

In addition, physical stores and digital platform operations complement each other given that:

  • physical stores are used to promote Company’s brand to potential users of digital platform that frequent the 191 shopping malls in which Company is present, reducing the need to invest in marketing initiatives related to digital platform;
  • customers that frequent the physical stores to pick up or exchange products purchased online create a greater in-store flow of customers, resulting in an increase in sales in physical stores;
  • physical stores direct customers to digital platform through the presence of in-store megastore terminals (screens that provide access to extended inventory network);
  • physical store presence creates a sense of security for customers when purchasing products online, thereby increasing the use of the digital platform; and
  • both physical stores and digital platform are a source of customer e-mail capture, thereby fostering post-purchase interaction with customers through promotional emails and personalized product recommendations. In 2018, approximately five million e-mails were captured (3.7 million of which were captured through physical stores and 1.2 million through digital platform), resulting in a database of a total of 15.6 million e-mails.

Company believes that its omni-channel platform is a strong competitive advantage that differentiates it not only from the competitors that have no physical presence but also those that do not have an online presence.

 

Strategic presence throughout Brazil with a mature digital platform

Company has been in operation for 38 years and has stores 23 of Brazil’s 26 states and in the Federal District, the majority of which are located in Brazil’s largest shopping malls according to ABRASCE, with a total aggregate area of approximately 190 thousand m².  Company believes that it was pioneer in Brazil in developing megastores focused on sporting goods in shopping malls.  Its nationwide coverage provides it with knowledge and experience in operating across several regions in Brazil, including knowledge of the preferences and other features in each region.  Company believes that its knowledge and experience foster its sustainable growth in all regions of Brazil.

Company has an established and consolidated presence in Brazil’s best points of sales and have established good relationships with shopping mall administrators, which Company believes is a barrier of entry for competitors into the large-store retail market by hindering their ability to reproduce its megastore model in shopping malls.

The cities in which the stores are located account for 39% of the Brazilian population and 52% of Brazil’s gross domestic product, or GDP. As a result, Company is able to reach a significant portion of the Brazilian population, without taking into consideration the digital platform, which can be accessed in all Brazilian cities that have internet access.

Considering sales made through digital platform, through which Company makes deliveries throughout Brazil, its presence and coverage in Brazil are even greater if it is considered sales made through digital platform, through which Company makes deliveries throughout Brazil.  In 2018, website registered approximately 170 million visits, mobile application registered approximately two million downloads through the Apple Store and Google Play, and Company offered a range of 126,000 SKUs to customers.

Company’s digital platform has seen significant sales growth in recent years.  In 2018, its net sales from e-commerce represented 16.0% of total net sales, an increase of 41.2% when compared to 2017.  Company believes that its physical presence in almost every Brazilian state combined with its digital platform is an important competitive advantage as Company is able to access customers across all channels and sustain the omni-channel model.

 

Established and recognized brand leadership in a dispersed and expanding market

Company has been active in the Brazilian sporting goods retail market since 1981 and during this period it has seen ten World Cup soccer tournaments and nine Olympic games, among other sporting events, allowing it to create a strong operational execution capacity and better understand the behavior of its customers.  Company is a nationally recognized brand and has a long-term relationship with its customers, all being factors that support the growth of its business in terms of products, services, experiences and information.

Company is leader in the Brazilian market in a widely dispersed sector that generated approximately R$33.2 billion in 2017 according to information published by Euromonitor International in 2018.  According to Company’s internal estimates, it has a 5.2% market share based on its net sales from physical stores in 2017.  Company also enjoys 84% brand awareness, the highest among sporting goods retail companies in Brazil, which Company believes evidences its brand recognition among customers.  In 2018, for the third year in a row, Company won the Prêmio Época Reclame AQUI award in the “E-commerce – Sporting Goods” category, an award that recognizes the best companies for consumers based on a popular voting and company recognition.

Company believes that its market leadership and brand recognition reflect its efforts to provide customers everything that they need to practice their favorite sports and have well-positioned the Company to increase market share, and consequently, sales.

 

Partnerships with the world’s major sporting goods suppliers

National presence and leadership of the Company in the sports retail market has enabled it to build, over the last few years, strategic partnerships with the largest sporting goods brand names in the world, providing it with a significant competitive advantage.  Through these partnerships, Company has managed to provide a better, and often exclusive, product offering to customers.  Company’s partnerships provide it with a competitive advantage, not only allowing it to market several exclusive products, but also contributing to its growth, often through its partners’ investments in the renovation and expansion of Company’s network of physical stores. In 2018, approximately 72% of the capital expenditures Company incurred in respect of 5th generation stores was funded by shopping mall developers and suppliers.

Company strives to convey in the best possible manner the desired message of key sporting goods brands, which Company believes enables it to maintain long-term partnerships withs these brands.

In addition to these close partnerships with sporting goods brands that have achieved worldwide recognition, in 2017 and 2018, as part of Company’s strategy to provide the best variety of sporting goods to customers, Company has exclusive sales arrangements with certain brands, and has established a new line of exclusively licensed sporting goods through license agreements with sporting clubs to develop licensed products developed by it and approved by the respective sporting clubs.

These relationships of trust with a number of suppliers and partners are extremely important factors in order for Company to continue improving and expanding its portfolio of goods and to strengthen its brand.

 

Strength of management and solid corporate culture

Company’s management team consists of highly qualified and experienced personnel with in-depth business expertise in the retail market with respect to both physical stores and digital operations and a clear corporate vision that favors agile decision-making.  Management team works under a model that targets both individual and corporate goals in determining bonus remuneration in order to ensure that all members are unified in achieving Company’s business strategy.  Management team has consistently provided Company with excellent results in terms of growth, profitability and efficiency.

Company believes that the quality of its management allows it to produce innovative solutions that provide it a competitive advantage when combined with the retail expertise of Company’s founding shareholders and the know-how and expertise of controlling shareholders, contributing to the improvement of its internal controls and the assertiveness of Company’s decision making and strategy.

Company further believes that its culture and reputation allow it to attract motivated staff members, who through training programs, develop an in-depth knowledge of business and products.  Company’s training programs are conducted in a virtual format through an interactive and modern platform online and on mobile applications, websites and internal channels on social networks.  These training programs are available throughout Brazil, and Company regularly updates them with internal information and content from the brands it sells.

 

Strategy

Become the main sporting platform in Brazil, connecting products, services, experiences and information for communities

Company believes that consumer digitization and the emergence of new technologies have meant that the value of the traditional retailer, that is, retailers that only resell products without adding any additional value to the customer’s experience, has been significantly reduced.

Accordingly, Company increasingly seeks to rely on its competitive advantages to offer its customers differentiated experiences that are difficult to replicate, such as:

  • taking advantage of physical presence through in-store experiences and services that cannot be found online;
  • offering a high level of service for the delivery, pick-up and exchange of products through its omni-channel platform, a platform that is difficult to replicate by competitors who operate under a single sales channel;
  • offering suitable information that aids customers in selecting products by making use of customer product evaluations;
  • offering the most complete product assortment possible through partnerships with suppliers, marketplace platform, own brands, product licensing and other partnerships;
  • providing innovative and new sports experiences and services for customers; and
  • creating a platform that connects sports service providers to end consumers.

In developing this strategy, Company aims to be perceived by the entire sporting community as the main reference for sports.

 

Continue to enhance omni-channel platform

Omni-channel platform, including Click & Collect and Ship from Store delivery initiatives, is integrated and accounts for 37.3% of digital platform’s sales volume.  Despite this achievement, Company continues to research and develop technological and process improvements to strengthen and expand the platform in order to create the largest omni-channel sports retail channel in Latin America.

Among its primary initiatives are:

  • Geolocation of digital platform. Improvements in identifying customers’ locations and in communicating through the digital platform in order to inform consumers which products are available in nearby stores for immediate purchase or express delivery.  Currently, this feature is only available on the delivery page of Company’s website.
  • Implementation of RFID (sensors that allow for the identification of each product using radiofrequency) throughout operations to allow the Company to more accurately and frequently monitor store inventory.  Through this technology, Company believes that it will have greater awareness of the products that are in inventory and those that can be offered on digital platform, thereby increasing product assortment and reducing failures in omni-channel orders.
  • Extended inventory. With the expansion of 5th generation stores, Company will have more points from which customers can gain access to the entire extended inventory.  In addition, Company believes there is potential to increase the use and conversion of physical stores that currently offer existing extended inventory.
  • Logistics improvements. With the expansion of physical stores supplied by Company’s own fleet, it will be able to deliver Ship from Store solution using own vehicles, reducing delivery time, logistics costs and loss ratio.
  • In-store product reservation. Providing an option for customers to put products on hold in physical stores through Company’s digital platform, allowing them to try out products in-store and decide on the purchase thereafter.

By executing the above initiatives, Company expects to create an even more differentiated service that positions it as the preferred retailer in the market as well as generate sales growth and profitability.

 

Continue to expand and transform store network through new 5th generation store concept

Cpmpany believes that its physical presence is complementary to its strategy of expanding omni-channel platform and, therefore, necessary to make the shopping experience more complete for customers.  In light of this concept and customer centric culture, Company created 5th generation store model in September 2017 in order to carry out its omni-channel strategy and value proposition across physical stores.

In 2018, Company had 16 5th generation stores, of which 11 were remodeled stores and five were new stores (two in Porto Alegre, one in Canoas, one in Cuiabá and one in Nova Iguaçu).

5th generation stores are designed to enhance the customer shopping experience, providing all the benefits of omni-channel strategy while also providing opportunities for the community to connect with sports in a variety of ways.  Among the main initiatives that 5th generation stores bring to customers are:

  • Shoe testing. Customers have the ability to test sneakers on a treadmill that simulates races in various parts of the world before deciding to purchase.
  • “Do Seu Jeito” (Your Way). A service that offers soccer shirt customization and boot and racket stringing.
  • Smart fitting rooms. Fitting rooms equipped with a touchscreen that allows customers to identify the products that they will try on so that they can receive suggestions for similar products that may also be of interest.  The touchscreens also allow the customers to request assistance and receive different sizes and products without leaving the dressing room.
  • Mobile check-out. A mobile payment solution allowing store attendants to process purchases directly with the customer anywhere within stores, thereby reducing cashier queues.
  • Extended inventory (megastore). Tablets and megastore terminals scattered throughout stores allowing customers full access to all of Company’s extended inventory and enabling them to buy a product that is not available in a particular physical store as well as providing search tools for the customer to find other related products.

This strategy has resulted in significant returns, with same-store-sales of up to 49.5% and a same-store sales average of 25.9% in 2018, higher than Company’s other physical stores. These returns are also recognized by its partners who contribute the necessary resources for store renovations and openings. Currently, capital expenditures in respect of 5th generation stores total R$2,407.27 per m2, of which approximately 72% is funded by shopping mall developers and suppliers.

Company believes that renovating its existing physical stores to 5th generation store model and new openings of 5th generation stores will increase capillarity and strengthen its omni-channel model, contributing to increased sales in physical stores and on digital platform. Company has already mapped 173 potential locations to open new stores and intend to migrate its remaining physical stores to the 5th generation model given that (1) 62% of these stores have not undergone renovations in the last eight years and (2) the stores Company most recently renovated even before the roll-out of 5th generation stores experienced a significant increase in sales after remodeling. Company believes that stores remodeled after 5th generation store concept will experience even higher sales. The installed capacity of distribution centers is sufficient to support a large increase in sales volume.

 

Capture additional data to facilitate the management of operations and improve customer service

Company believes in the use of technology and data to get to know customers and better attend to their needs.  In physical stores, the new 5th generation store concept enables the Company to generate customer behavior data by measuring the duration customers remain in each area of a particular store, sales conversions in each segment and the number of customers who access virtual inventory.

Through digital platform, Company monitors searches performed by customers, the platform (website, mobile site or mobile application) they most utilize, how often they purchase products on digital platform and how they are evaluating its products.  Company also uses the platform to collect information on customers’ sporting habits, including their favorite sports and how often they exercise.  Company makes use of data mining across social networks to analyze customers’ sporting habits and behavior, their most practiced sports, their motivation to practice sports and places where sports are practiced.  Company also monitors the news that influences the sports market and the topics with the greatest impact through interactions on social networks.

The team of data scientists use this data to generate information that optimizes customer-focused decision-making and to facilitate the delivery of differentiated services and experiences based on customer-centric vision.

In 2018, Company used artificial intelligence to perform dynamic pricing for products on digital platform and it will continue to expand the use of this technology to cover a wider range of products.  Company also intends to make use of data science (which is the science that involves the capture, transformation, generation and analysis of business-related data and information in a structured and disciplined manner) to reduce inventory disruption through the study of captured data, to optimize product allocation in stores and to improve customer relationship management strategy in order to understand and anticipate customer needs through personalized communication with customers.

In terms of logistics, through the use of RFID technology, Company is able to obtain accurate inventory location data, which provides it with greater accuracy in accounting for all of its inventory and optimizes storage and distribution processes so that it is able to maintain rapid and flexible logistics operations.

 

Bring innovative and relevant experiences to its customers

Company believes that its corporate structure and culture make Company an environment conducive to innovation.  Through its growth and innovation department and with the support of data science department, Company has been able to rapidly develop and test new products designed to incorporate experiences and services that it believes are relevant to further connect customers to the world of sports.

Company has tested experiences aimed at sports fans such as a mobile application that offers interviews with sports players related to exclusive products that Company offers as well as services aimed at those who practice sports, such as a running assessment mobile application.

Company believes that through its broad access to participants and sports fans, it is able to deliver new solutions that in addition to increasing consumers’ contact with sports, place the Company as the destination to provide for all of their sporting needs.

 

Offer leading sporting goods to customers

Company aims to offer the most complete portfolio of sports products to its customers. To achieve this goal, Company strive to maintain excellent relationships with suppliers and to offer the best sports products on the market, often exclusively.  In addition, Company seeks to continue to identify gaps in products portfolio, develop new products and establish new partnerships.

Its design department works together with its own brand partners in the development of high quality and affordable products that meet customers’ needs and expectations as well as seek to continuously understand the profile of customers in order to improve the purchasing process, allocation and exhibition of products in-store based on customers’ preferences.

Through the marketplace platform, Company offers approximately 119,800 SKUs that do not form part of inventory because they have less turnover and/or provide us with lower margins. Company intends to continue to expand this product assortment by offering new colors, sizes and product categories that are not currently available.  It will continue to strive to improve customers’ shopping experience on this platform.

Company has a personalization department that offers products virtually and produces them on demand after a purchase has been made.  Through this department, Company has been able to offer hundreds of thousands of SKUs without the additional need of storage and intends to improve the development of these products.