How Fanatics is taking its ‘v-commerce’ merchandising model global

Florida-based Fanatics is already a leading player in licensed sports merchandise, but only a tenth of its annual sales come from outside North America. With an ambitious overseas expansion plan and a new president of international at the helm, that might not be the case for much longer.

How Fanatics is taking its ‘v-commerce’ merchandising model global

As one of the world’s largest licensed sports merchandise retailers, Fanatics Inc enjoys household-name status in the United States. Headquartered in Jacksonville, Florida, the company operates more than 300 online and offline stores, running e-commerce operations for all of North America’s major sports leagues as well as a host of other professional and collegiate properties including golf’s PGA Tour, Nascar and the Ultimate Fighting Championship (UFC).

Those high-profile partnerships have helped cement Fanatics’ status as America’s leading seller of jerseys, caps and other branded team gear, but outside of its Stateside stronghold the company is not quite so well established. Today, just ten per cent of the company’s US$2 billion annual sales is generated from outside its domestic market.

In an effort to grow that percentage, Fanatics is now implementing a strategy to replicate its home market dominance and capabilities in licensed sports merchandise internationally, and the man tasked with overseeing that drive is Steve Davis, who began his new role as president of Fanatics International earlier this week.

With a career in retail and e-commerce spanning more than two decades, Davis arrives at Fanatics from the world of fashion, where he most recently served as chief executive of fast-fashion retailer Rue La La. He does, however, have history with his new employer, having previously served as head of global operations at GSI Commerce, the e-commerce and marketing solutions company from which Fanatics was effectively spun off around the time GSI was sold to eBay in 2011.

“For me, coming back to Fanatics, it’s a little bit of a back to the future situation,” reflects Davis, who says he has known Michael Rubin, Fanatics’ largest shareholder and executive chairman, and Doug Mack, the company’s global chief executive, for the best part of 20 years. “I’m coming back to the business that I helped incubate back in 2000 and yet the business has moved so far along since that time.”

Originally formed as a football-focused company in 1995, Fanatics' impressive growth has seen it expand from a half a billion dollar valuation just a few years ago to over US$4 billion this year. Now, the company has the global marketplace firmly in its crosshairs, and it is down to Davis (left) to pull the trigger.

“We’re going to grow the licensed sports industry around the world and make it more valuable for clubs and allow fans to tap into their love of the clubs more frequently and in more ways,” he says, speaking exclusively to SportsPro as his appointment was confirmed on Tuesday. “It’s a US$25 billion global business, it’s just not growing the way it should because it doesn't have the level of innovation that has been brought to other industries.”

Shifting gear

Davis’ arrival comes after a period of aggressive overseas expansion at Fanatics. In February of 2016, the company made its biggest international play to date when it acquired Kitbag, the Manchester, UK-based online retailer, in a deal valued at around UK£11.5 million.

That deal, as Mack explained to SportsPro shortly after its completion, gave Fanatics immediate overseas scale, rapidly accelerating the growth of its business by adding more than US$100 million in global revenue and a strong foothold in soccer, with Kitbag maintaining relationships with several top European clubs including Manchester United, Real Madrid, Manchester City and Paris Saint-Germain, as well as other retail partnerships with the likes of golf’s Ryder Cup, Wimbledon and the Tour de France.

The aim now is to ramp up the rate of expansion, a process that will be accelerated thanks to an injection of fresh capital from such influential backers as the National Football League (NFL), the NFL Players Association and Major League Baseball (MLB), who all purchased equity stakes in Fanatics earlier this year. Those investments were seen as ringing endorsements of a business model that has helped Fanatics quintuple its revenue since 2010, but in reality they are just the tip of the iceberg.

This September, investor confidence in the outlook for Fanatics' business was further underlined when the company closed a US$1 billion funding deal with SoftBank, whose US$100 billion ‘Vision Fund’ has been earmarked for investments in disruptive companies across a range of industries. That particular agreement elevated Fanatics’ valuation to some US$4.5 billion, more than twice its expected revenue for the current year.

“We are excited about having the capital to build out this business on a global basis but SoftBank’s investment in us is really a validation of our vision and the track record and momentum we have as a business to disrupt this space, first and foremost,” says Davis.

"Secondly, SoftBank is a great partner. [It was] an early investor in Alibaba, one of the first investors in many leading e-commerce and digital companies around the world. SoftBank’s Asian strengths are really going to be a benefit to us at Fanatics and help to build out our Asian business in a really big way."

Data-driven 'v-commerce'

According to Davis, capital from the recent investments is to be deployed into growing what he calls “the three legs of the Fanatics capability stool”. The first area, he explains, is in the continued development of advanced e-commerce technology and “an omni-channel retail approach” that encompasses online stores, mobile apps, bricks and mortar outlets, and in-stadium or on-site merchandise operations.

To further build out this core area of the business, Davis says Fanatics will look to establish dedicated teams in local markets that will operate and enter into new commercial relationships with sports brands and teams, supported by the company’s global network. He identifies Germany and China as likely expansion markets for within the next six months, thereby creating a global network of regional hubs to complement existing international offices in Tokyo and London. “It’s really about the globalisation of this business,” he says.

The second area for investment is in raising awareness of the Fanatics brand in the global marketplace, while the third area of focus concerns what Davis calls “verticalisation”. The idea, he explains, is to further develop Fanatics’ worldwide manufacturing and distribution infrastructure, establishing a sophisticated, streamlined and scalable supply chain that facilitates real-time merchandising and, as a consequence, the ability to get products to market quickly.

Davis notes how Fanatics has already successfully implemented this “v-commerce” model across North America, where the company has dramatically scaled up its design, manufacturing and distribution capabilities whilst securing an enviable portfolio of valuable sports licensing rights.

In May, for instance, Fanatics acquired VF Corporation’s Licensed Sports Group, which includes the Majestic apparel brand. That deal followed the signing of the company’s major new partnership with Under Armour to take over exclusive manufacturing and retail rights to all MLB apparel, including on-field jerseys, from 2020 onwards.

We live in this on-demand world where data is available and coming at you from all different directions. You can really leverage that data and build a supply chain that reacts of the moment.

Together, the two strategic moves mean Fanatics effectively controls both ends of the MLB supply chain, and company bosses hope this joined-up approach will encourage properties across the global sports industry to rethink their merchandising strategies going forward - but that is not to say it hasn’t been used elsewhere already.

Davis explains that the model is, in essence, inspired by retailers such as Zara and H&M - two companies that have “innovated and disrupted" the online fast-fashion industry by making smart use of big data to adapt their supply chains to an increasingly fast-paced, demand-driven retail landscape.

“We live in this on-demand world where data is available and coming at you from all different directions,” he says. “You can really leverage that data and build a supply chain that reacts of the moment.

“In a traditional fashion cycle, if you’re buying a Burberry product for your retailer, you’re buying that Burberry product six to nine months in advance. You’re deciding what styles you want, you’re trying to guess the quantities, you’re trying to guess the colour ways that are going to be best-selling, and you’re going to hope you’ve got it right. And inevitably you’ll be very, very wrong.

“Clearly Zara and H&M are vertically integrated, and they’re not making bets six or nine months in advance. They’re looking at the data of what’s selling today in their stores and they’re completely changing the assortment the next week.”

Davis adds that this type of integrated, reactive approach is now “critically important” in sport, where agility and speed to market are vital given results and spikes in interest are rarely ever predictable. He specifically points to the example of Leicester City, the 5,000-1 shot who memorably claimed the Premier League title in 2016. According to Davis, the club might have sold “ten to 20 times more merchandise” following their unlikely triumph had they only had a more efficient, scalable supply chain to call upon.

“You don’t know what teams are going to be hot and lead the table, and which teams are going to be cold,” he continues. “You don’t know what player is going to have a breakout year and what player is not. You don’t what moments, micro-moments, what player is going to break a goalscoring record or things of that nature.

“You need a supply chain that is inspired after the likes of these fast-fashion retailers, that delivers against this opportunity in sports and clubs can maximise against the opportunity.”

The next wave of e-commerce

To highlight the operational efficiencies inherent in this ‘v-commerce’ approach, Davis suggests the way in which it could transform in-stadium merchandising, which is one area in which he sees particular scope for innovation.

While some clubs and venues are already offering click-and-collect services or in-seat ordering for fans looking to purchase products from their phones as the event unfolds, he foresees a time when real-time manufacturing carried out on-site will enable clubs to offer newly created merchandise - perhaps commemorating an historic moment that happens on a given day, such as the breaking of a goalscoring record - even before a game has ended.

“These are the things that we’re going to bring to that stadium and that fan experience, to just enhance the live event itself,” he says.

Davis believes a 'v-commerce' approach to merchandising can help clubs like Leicester City, unlikely champions of the Premier League in 2016, fully capitalise on spikes in consumer demand.

Looking ahead, Davis says his goal is to help Fanatics grow into a genuinely global business with US$10 billion in annual sales, "approaching half” of which will come from outside of its domestic market. In order to reach that target, he says, overseas growth will be driven through a combination of developing Fanatics’ existing business verticals and, where it makes sense, further acquisitions.

“We are going to focus on an organic build,” he says, “but where we see the opportunity to acquire a company that can complement what we’re doing or accelerate some of our existing plans, we will look at those seriously and consider an acquisition to help us.

“What’s really game-changing to the industry is the introduction of this ‘v-commerce’ model, which we believe is the next wave of e-commerce and what’s going to drive growth over the next decade: using data, fully integrated, real-time merchandising and creation of merchandising trends.”

“This vertical e-commerce play is at its early stages and I think will create the most exciting phase of the business that has existed to date.”