Dunham’s Sports is in growth mode. The sporting goods retailer has racked up double-digit sales growth over the last several years, at a time when the sports-apparel sector saw more modest sales increases. The company is also expanding its physical presence. When Al Blazek became CFO in 2009, Dunham’s operated 155 stores in 12 states. Three years later, it has 200 stores in 16 states, stretching from Minnesota to North Carolina and South Dakota to Pennsylvania.
Blazek, a former marketing finance director at Whirlpool and divisional CFO at CircuitCity.com, has many of the same concerns and responsibilities as other finance chiefs in the sports-retail sector. But with $750 million in revenue and about 2000 employees, Dunham’s is still smaller than its major competitors, including Sports Authority and Dick’s Sporting Goods. To keep Dunham’s in the game, Blazek has to do more with less, acting as both big-picture strategist and hands-on finance expert.
CFO recently spoke with Blazek about his role as finance chief at the growing sports retailer. That interview, edited for clarity, follows.
What are your responsibilities as the CFO of a fast-growing company?
Since Dunham’s has grown very quickly, I do a lot of operational work, as well as strategic work. But I’m also still doing a lot of things that would get delegated down the line at a bigger company, like reporting, and tracking cash flows. All of our C-level executives have our hands in the day-to-day workings of the business. I need to understand what’s going on at the store-by-store level. This year, we had a big snowstorm in Minnesota and South Dakota that closed down a few of our stores. At other companies that would just be another report that gets sent out. Here, everybody is kind of responsible for keeping track of those things and in my case, saying that is going to affect sales for today and the next couple days, or that we might get a boost depending on what the weather is like when the store reopens.
How much time do you spend on strategy?
I spend about a third of my time on strategy questions. Right now we’re in a growth mode, so I’m looking at where it will make the most sense to expand. We’re based in Michigan and we still have a third of our stores there, but now we’re in 16 states, and I anticipate we’ll be in more than 20 states in a few years. Should we open larger stores? Historically, we’ve had stores as small as 7,000 square feet. By comparison, a Dick’s Sporting Goods store will usually be 60,000 or 80,000 square feet. If you have a 10,000-square-foot store and Dick’s opens a 60,000-square-foot store right next to you, that pretty much wipes you out. But if we open bigger stores, we can hold our own. We won’t get the same rate of return on the dollar, but we can still get well beyond our hurdle rate and cost of capital, even if it costs a little more money up front. Going forward, the stores we are opening average 50,000-plus square feet.
One of the most important figures for any retail CFO is shrink. How do you keep track of it?
Throughout the year, we take groups of the stores at a time and do an actual physical count of the inventories to see how our shrink is doing and if we’re losing a lot of product, whether through theft or being mislaid. And long-term trends in our shrink have actually gotten much, much better. We have technology that we didn’t have even five or ten years ago that has helped us to keep track of stores where we’ve noticed shrink has been unusually high. We’ve been able to use that to focus our efforts, and we’ve found that many times it’s employees, rather than customers, who are stealing. The internal folks know the processes and the procedures, and if there’s a loophole, they know how to exploit it. We’ve been able to catch people doing these things and minimize that theft. As word gets out that we’re keeping track of this, it’s dissuading thieves from wanting to take work with us, because they know they’re not going to get away with stealing things.
How involved are you personally with managing shrink?
In fairness, the loss prevention guys are the ones who are the real heroes there. I don’t do that personally, but I have a little bit of oversight of that area, with regards to inventory. I’m really just there looking at the numbers, tracking it both inter-year and then on a multi-year basis to say as a percentage of our sales, we’ve been getting better year by year. And when new technologies come up, I’m the one who’s signing off.
You’re not a CPA. Has it ever been a hindrance to you as finance chief at a hands-on company? What’s your educational background?
My accounting skills are good, but no one is ever going to mistake me for a CPA sharp shooter. My undergraduate degree is in chemical engineering and my MBA is in corporate finance and investment management. All things being equal, it’s always best to have more of something than less. But truthfully, those who don’t have a CPA just need to learn how to communicate with the controllers they are dealing with.
As I’ve moved up the ladder, the number one thing people always say is, “huh, so you’re a CFO and you don’t have a CPA.” And I go, “yeah, I’ve always had divisional controllers.” In my mind, the skillset for a CFO is very different than the skillset for a controller, and usually people can’t do both. The CPA is somebody who knows the excruciating detail and is really focused on executing in a very structured way. And the CFO is always looking at unstructured things, like “we need to grow 20 percent to-year in EBIT, and how do we get there”? In accounting, there’s a right answer and a wrong answer. As CFO, there may be a wrong answer, but you don’t know it until after the fact. And you just kind of have to be able to deal with the uncertainty.