Larry Hochberg grew up in a retailing family that owned a toy store that blossomed into the Children’s Bargain Town chain, which evolved into the New Jersey-based giant Toys “R” Us.
The concept of massive assortments of branded products sold at a discount was in his blood. But he wanted to go his own way.
So Hochberg and a partner, Sanford Cantor, decided that what was good for toys should be even better for sporting goods: In April 1971, they opened the country’s first sports superstore at Dempster and Harlem Avenues on Chicago’s Northwest Side, calling it Sportmart.
Over the decades, the company grew, and eventually went public. It had its share of peaks and valleys, but financial problems mounted.
As a result, Hochberg’s Wheeling-based Sportmart Inc. will join forces with another sports company, it was announced Monday.
Sportmart and privately held Gart Sports Co. of Denver said they will merge, with the surviving company, Gart Sports Co., headquartered in Denver, where Gart has a 70-year history. But Hochberg said, “The Sportmart name will remain a Chicago institution.”
Gart’s current chairman and chief executive officer, Doug Morton, will serve as its chairman, president and CEO. Hochberg and his son, Sportmart chief executive Andrew Hochberg, will serve on the new company’s board of directors, and Andrew Hochberg will have a consulting role.
Neither Morton nor Hochberg would discuss financial terms of the agreement.
“There are no thoughts of changing the name,” Morton said Monday by phone. “It’s very meaningful, an asset. You don’t take a name like that and throw it away.”
Morton also said there will be no store closings other than previously planned ones. “Some cuts will be inevitable in corporate headquarters, but we hope half of the management staff will join us in Denver.”
Based on the agreement’s conversion ratio, current shareholders of Gart will hold approximately 72.5 percent of the combined companies, and Sportmart shareholders will own the remainder.
“Everybody’s having a problem valuing this deal,” Morton said with a sigh. “It is structured as a merger, and their board voted for it. It is not a takeover. It has significant long-term value for Sportmart shareholders.”
Wall Street reacted negatively. Sportmart stock fell $1.19, or 25 percent, to $3.56, on the Nasdaq stock market.
The Hochberg family owns 60 percent of the company’s voting shares. “We encouraged and negotiated the agreement,” said Larry Hochberg.
“If Doug (Morton) is successful in assimilating Sportmart, it will be of tremendous value to shareholders,” said retail analyst Skip Helm, a longtime follower of sporting goods retailing for Chicago-based William Blair & Co.
That success is feasible, according to Helm’s assessment of Gart. “Gart has carved out a very solid niche,” he said, noting the company’s dominant position, its solid distribution system and “excellent field and senior management teams. The challenge will be to digest something bigger than you are. But Gart has as good a chance as anyone to turn it around.”
Other analysts were suspicious of the lack of disclosure of financial terms, and others questioned just how deep Sportmart’s financial problems really are.
After the transaction is completed, now expected by year’s end, the company will apply for listing on Nasdaq, Gart said.
Larry Hochberg admitted that Gart’s “very strong balance sheet” played a significant part in the merger.
“This will allow us to grow . . . in the tough environment this business has become. We synergize so well,” Hochberg said. “We have a similar outlook on the business.”
Morton pointed out Sportmart’s strengths are in exercise equipment and in specific operational areas, while Gart is strong in upscale winter sports equipment, cold-weather gear and golf. It also has a reputation for its service, not exactly Sportmart’s strong suit.
Retail consultant Sid Doolittle of Chicago-based McMillan/Doolittle, said Hochberg “is considered the dean of the high-value sporting goods retail business. He was the first real innovator.”
But then The Sports Authority started chipping away. So did Erehwon and REI and other specialists in sporting clothes and equipment.
Experts say Sportmart made some moves it possibly regretted. Going public put new pressures on the company. Expansion to California and Canada rather than expansion in familiar areas proved difficult, especially so in Canada, where Sportmart could not deal with the competition and eventually closed its stores.
