Glenn Campbell and Scott Molander were managing Foot Locker locations in Indianapolis in the early 1990s when they came up
with the idea for Hat World—a store selling a broad assortment of sports caps.
Not everyone shared their enthusiasm back then. The pair ended up opening their first location, at Tippecanoe Mall in Lafayette, because the mall manager there was willing to give them a shot. Campbell would sometimes sleep in the storeroom rather than make the trek home.
It’s worth remembering the chain’s humble launch just 15 years ago because nowadays the Indianapolis-based business is blossoming into a colossus.
It’s already a major business. Since retail chain operator Genesco Inc. of Nashville, Tenn., scooped up the Indianapolis company for $165 million in 2004, its roster of hat stores has nearly doubled, to 877, most operating under the Hat World or LIDS monikers. The growth has come by adding stores and acquiring smaller players.
The business, which remains based on the northwest side, generated sales in the latest fiscal year of $466 million. Its operating profit—$44 million—was on par with Genesco’s far-larger Journeys chain and eight times that of its Johnston & Murphy shoe chain.
But that’s just the start. Genesco executives in recent months have positioned the division—recently rechristened LIDS Sports Group—as perhaps their biggest engine of growth.
Here’s the strategy: Expand from hat retailing into two new segments—licensed sports apparel and team-sports equipment—and benefit from the synergies among them. Both new segments are fragmented and filled with competitors that lack the economies of scale and broad merchandise assortment LIDS can offer.
Team-sports equipment is perhaps a $5 billion segment “serviced by 5,000 team dealers who are in our judgment astonishingly unsophisticated, particularly in their lack of use of technology,” Genesco CEO Robert Dennis said at an investor conference in New York City last month.
The company built a platform for team-sports growth by buying Impact Sports for $2.9 million last year. With a smaller acquisition completed in May, LIDS Team Sports now has a presence in 43 states.
LIDS used last year’s $14 million purchase of the 37-store Sports Fan-Attic Inc. to launch LIDS Locker Room, its licensed sports apparel unit. And in May, the company agreed to purchase the 46-store Sports Avenue. It operates traditional licensed-sports apparel stores as well as team stores for the New York Yankees, St. Louis Cardinals and others.
All three divisions will feed off one another, said Dennis, a former Hat World CEO.
“We can go into a college to an athletic director and say, ‘We can outfit your team through our team sports business. We can then take that merchandise and we can operate your stadium store for you. And then we can have that merchandise also available in our LIDS-branded stores,’” Dennis said during the investor conference.
“And so it’s really a one-store shop … in terms of the relationship with the schools, and we are the only one that will offer that.”
To support the expansion, Genesco announced last month that it will spend $22 million to expand the company’s Indianapolis headquarters and distribution operations.
LIDS Sports Group, which now employs about 250 at its Indianapolis headquarters and distribution center, expects to add as many as 571 jobs here by 2015 as part of the project. That includes about 150 Impact Sports jobs in Madison, Wis., that will move here as LIDS consolidates manufacturing and distribution.
Sticking around for the next round of growth are Hat World’s founders. Campbell now is vice president of strategic initiatives, and Molander is senior vice president of real estate.
While LIDS Sports Group branches into new segments, executives say they’ll continue to add cap shops. Though LIDS stores have pretty well saturated malls, executives see an abundance of opportunities elsewhere, from tourist destinations to casinos.
Dennis told analysts early this year that he believes the chain can surge past 1,000 North American locations.
Not bad for a concept Campbell and Molander once dreamed of building to five stores.•