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Sport Chek Takes on Lululemon Athletica Inc.

Look out Calgary; Sport Chek is coming to the Chinook Centre — a move that’s signaling it may be trying to capture market share from Lululemon Athletica Inc (NASDAQ:LULU).

Sport Chek parent Canadian Tire Corporation Limited (TSX:CTC.A) had a very strong year in 2016 and is likely trying to capitalize on that momentum by taking Canada’s number one sporting goods retailer in a completely different direction by opening a concept store March 2 for women only.

Said to be “designed by women, for women,” the new 16,675 square foot store won’t look like a typical Sport Chek location and will provide products and services specifically geared to women, including yoga wear, sports bras, etc.

It’s a development Lululemon will surely be watching.

The question for investors is, can a store for women only grow into something that goes coast to coast? That’s hard to answer. I guess that’s why it’s called a concept store. However, if another one opens in the near future, we’ll know Sport Chek’s findings at its initial launch were positive enough to warrant a second location.

Here in Canada and south of the border in the U.S., there are too many stores chasing too few dollars; retailers must be ruthless when it comes to store expansion because the last thing anyone needs at this point in retail history — when more and more people are shopping online — is a bunch of underperforming brick-and-mortar locations with five- or 10-year leases hanging around their necks like bad jewelry.

What’s ironic about Sport Chek’s latest move is that it comes less than eight months after former Canadian Tire CEO Michael Medline was replaced as the company’s chief executive by current CEO, Stephen Wetmore, who previously served in the role for six years, ending his reign at the end of 2014.

Medline had a big part to play in the company’s acquisition of Sport Chek and several other sports-related retailers owned by Forzani Group in 2011 and Mark’s Work Wearhouse before that in 2002. Both acquisitions have played significant roles in the continued growth of Canadian Tire; in the final quarter of 2016, Mark’s and FGL Sports had same-store-sales growth of 10.6% and 5.1%, respectively.

Let’s get back to the question of whether this is simply a move on Canadian Tire’s part to push the envelope when it comes to sporting goods retail or if it’s a backdoor attempt to take market share from Lululemon.

It’s important to remember that Lululemon sells to both women and men and has done so for many years. Today, men’s clothing accounts for 18% of the company’s overall revenue and is so pumped about its men’s business that it’s started opening men’s shops with one in Toronto, one in New York City, and more on the way. It’s definitely the growth area of Lululemon’s business.

Okay, so what we have here is Lululemon trying to grab more of the men’s market, despite being known for its women’s clothing, and Sport Chek opening a women’s shop, despite being known for a primarily male customer base.

Hmmm…

Coincidence? I think not.

Canadian Tire sees Lululemon as a real threat to continuing to grow Sport Chek, so it’s decided to see if it can grab more of the women’s market by opening this concept store, but the trouble I see with this proposition is that it’s not as clear-cut an issue as women-only fitness clubs, which make sense if you’ve ever been inside a testosterone-driven gym. It can be a little uncomfortable.

While brands such as Nike and Columbia Sportswear have opened women’s only stores in recent years, they’re still a minuscule piece of the sporting goods retail footprint; personally, I don’t see that changing in the near future.

But heck, you have to give Canadian Tire an “A” for effort.

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Fool contributor Will Ashworth has no position in any stocks mentioned. The Motley Fool owns shares of Lululemon Athletica.

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