Sports apparel maker seizing the moment
Fanatics spots surges in demand, then acts quickly to sell gear.
Zach Schonbrun CONSHOHOCKEN, PA. — This fall, as some of the NFL’s corporate partners fretted about the league’s handling of its players kneeling during the national anthem, the sports merchandise company Fanatics pounced.
When Alejandro Villanueva, a Pittsburgh Steelers offensive lineman, stood for the anthem and the rest of the team stayed in the locker room, his name began trending on Twitter. Fanatics quickly posted a rendering of his No. 78 jersey on its website, and did the same on the Steelers’ website and the NFL’s online shop, both of which it also operates.
Sales skyrocketed. Manufacturing facilities in Kentucky and Florida went to work pressing Villanueva’s name and number onto thousands of blank Pittsburgh jerseys for next-day shipping. Overnight, a player who had never caught a pass or scored a touchdown had the NFL’s best-selling jersey.
“That moment happened, people wanted to immediately buy that jersey,” Michael Rubin, the company’s chairman and principal owner said. “A week later, that moment is mostly over.”
These micro-moments, as Rubin calls them, happen all the time in sports: A player reaches a milestone, has a breakout performance or is traded to a new team. Apparel companies have traditionally been poorly positioned to meet the accompanying fan demand as it surges. Fanatics is changing that and, in the process, carving out a lucrative niche in a fiercely competitive online-retail industry largely dominated by Amazon.
Fanatics has licensing rights with the North America’s four major sports leagues, more than 500 colleges, NASCAR, Major League Soccer and the Professional Golf Association. The company is similar to fast-fashion retailers like H&M, Uniqlo and Zara, integrating design and manufacturing with distribution to fulfill orders within hours. After the Chicago Cubs won the World Series last year, Fanatics used Uber to deliver championship gear to some fans within minutes.
As a result, Fanatics has more than doubled its revenue in just a few years. It expects to take in $2 billion in 2017, and to ship more than 10 million items from Nov. 27, Cyber Monday, to Christmas, at a rate of 40,000 packages an hour, its busiest holiday retail season to date.
The strategy has attracted a $1 billion investment from the Japanese conglomerate SoftBank. The Chinese e-commerce giant Alibaba has also taken a stake.
“If you’re selling the same merchandise that’s commonly available, and you’ve got no point of differentiation, you’re dead,” Rubin said. “It’s just a question of when you die.”
Rubin said that his company’s licensing deals, which run from 13 to 17 years with each of the four major professional sports leagues, are exclusive enough that “somebody can’t be a significant player without the rights that we possess.”
Amazon sells and ships teambranded products from vendors through its third-party marketplace. For now at least, Rubin sounds like he does not see that as much of a threat.
“Amazon is an incredible company,” he said, “but we have 5,000 full-time employees that go to bed and wake up thinking about the licensed sports business.”
Rubin, 45, got into the industry as a 12-year-old selling ski equipment out of his parents’ basement in nearby Lafayette Hill.
He attended Villanova University for one semester before dropping out to start a business that handled online sales and fulfillment for big-box retailers just as the e-commerce wave was beginning. He sold the company, GSI Commerce, to eBay for $2.4 billion in 2011, not long after he became a part-owner of the Philadelphia 76ers. (He also owns a stake in the New Jersey Devils.)
Among GSI’s properties was Fanatics, which had started in 1995 as a single brick-and-mortar store in a mall in Jacksonville, Florida. Rubin liked the business so much that he bought it and two other consumer-oriented properties back from eBay, combining them into a company called Kynetic.
“We sold the company on a Friday and we were at work again on Monday morning,” Saj Cherian, Rubin’s chief of staff, said during an interview at the company’s offices in this Philadelphia suburb on a recent afternoon.
“Well,” Rubin interjected, “I was at work Saturday morning.”
The industry that fuels Rubin’s enthusiasm is substantial. According to the International Licensing Industry Merchandisers Association, global retail sales of licensed sports merchandise reached $25 billion in 2016. The largest portion of that, 28.1 percent, was apparel.
But after a jersey and T-shirt craze in the 1990s, demand flattened. Leagues parceled out their most precious licenses to brands like Nike and Adidas, which mostly seemed concerned with using on-field uniforms as marketing tools, rather than with producing gear for fans.
At that point, Rubin said, the licensed sports merchandise market was “a very sleepy business” without a robust online presence. The leagues were doing more to reach fans directly in areas like ticketing and social media, he said, but lagging when it came to selling goods.
Robert K. Kraft, the owner of the New England Patriots, agreed.
“The industry needed to be disrupted,” Kraft said. Referring to Rubin, he said: “He’s brought tech, innovation and a vertical on-demand model that’s brought agility to an industry that hadn’t changed much in decades.”
Among the micro-moments that highlighted the new need for speed was Jeremy Lin’s emergence as a sudden star for the New York Knicks in 2012 amid the so-called Linsanity phenomenon.
“When Linsanity happened, within 12 hours to 24 hours, there were no jerseys to get,” Rubin said. “So you had this huge demand, and there’s no jerseys available. Then you order them like crazy, and by the time they get in, the moment’s over.”
Sal LaRocca, the NBA’s president of global partnerships, said the episode “was a large catalyst in moving to where we ultimately moved to with Fanatics.” The NBA entered an initial partnership with the company in 2015 to run the NBA store; Fanatics acquired the rights to sell replica jerseys beginning this season.
In 2013, Rubin moved most of Fanatics’ executive team to Silicon Valley from Florida and started a team dedicated to mobile platforms. “We couldn’t get the type of talent we needed in the speed we needed in Jacksonville,” he said.
This year, the company will spend $120 million to improve the customer experience, its data acquisition efforts, its communications with manufacturers and the Fanatics app.
The investment is critical, Rubin said, given that 90 percent of the company’s business is online, and more than 50 percent comes through mobile devices. Fanatics declined to disclose sales figures, but said that about a quarter of its sales have traditionally come in December. This year, it expects 70 million unique visitors to its websites, including more than 300 online team stores, for the month.
Major League Baseball said sales of Fanatics products on MLBShop.com were up 67 percent this year, thanks in part to the company’s ability to capitalize on hot-market items.
“It’s an untapped market that we’ve all been missing,” said Noah Garden, MLB’s executive vice president of business.
Fanatics’ only ties to brick-andmortar retailing are the roughly 30 team or league outlets operates in arenas and stadiums. Rubin envisions the arena stores complementing the online operation, with fans at games using their phones to order goods, and then having the items delivered directly to their seats.
Sports is particularly well-suited to online retail, with many fans living far from their favorite teams’ hometowns. But Fanatics’ success depends in part on its deals with the leagues, which could create competition by entering agreements with rivals.
“While I have a lot of admiration for what Fanatics has done, what they’re doing is replicable,” said Matt Powell, a sports industry analyst at the market research firm NPD Group.
The company is not waiting for that to happen. Doug Mack, the Fanatics’ chief executive, said it wanted to expand globally, and had already acquired rights to sell merchandise from nearly a dozen English Premier League teams, including Manchester United and Everton.
Rubin said he thought Fanatics could be a $10 billion company in 10 years, with half of its business coming from beyond North America.
At that size, it would surpass Dick’s Sporting Goods, Foot Locker and Under Armour, even if sports fans might not realize who was responsible for that musthave Tom Brady jersey.
“They probably don’t know it now,” Kraft, the Patriots owner, said. “But they will.”