NEW YORK () — JR's Sports Collectibles Inc. plans to launch brick-and-mortar stores under a franchise model using the inventory and distribution system that its online arm SportStation.com currently uses.

To prove the store model is viable, the athletic apparel retailer and wholesaler will first open stores itself and then look for franchisees, Chief Operating Officer Matt Bowen told Online Retail Report. JR's Sports already operates one store in Anaheim, Calif., and plans to open two to three new stores in southern California in July.

Smaller apparel retailers can have trouble carrying a variety of products because lines from Majestic Athletic Wear Ltd., Reebok International Ltd. and other major apparel makers each require minimum buy-in costs. That's an obstacle that JR's Sports can help surmount because of its relationships with major manufacturers, said Bowen.

"If someone wanted to carry two top lines, they're already into their inventory $50,000," said Bowen. With residents in southern California usually hailing from another part of the country, a sports apparel store would need to carry merchandise for a large number of teams.

JR's Sports expects to generate nearly $5 million in revenue this year, with about $3 million from SportStation, Bowen said. The e-tail unit also drop-ships orders for about 50 Web businesses and sells through Amazon.com Inc.

Unlike many other retailers moving from the Web to the bricks-and-mortar world, JR Sports has opted for the franchise model because the labor costs of doing business in southern California are too high. A retail store job that would pay $8 an hour elsewhere in the country would pay $12 to $15 an hour in southern California, according to Bowen.

JR's Sports' location in southern California has also made for expensive freight costs, something that the retailer aims to improve with a new distribution center in Albany, N.Y., opening in April. Even though 70% of SportStation's sales are shipped east of the Rockies, to date SportStation.com merchandise has been sent first to Anaheim then shipped back across the country.

Bowen said the new distribution center will save 40% on freight-in costs, shorten delivery times to customers on the East Coast and result in a $500,000 increase in sales in the first year. The East Coast is a bigger opportunity, as there are many more football, baseball and hockey teams there than in California. The company's wholesale business will also be able to sell to the roughly 70% of the market that it currently can't serve because of delayed ground shipping from the West Coast.

SportStation also plans to automate its drop-ship fulfillment for other Web businesses with new software from Mercent Corp. The e-tailer began using the software in October to automate orders coming from its presence on Amazon.com, growing so efficient that the company eliminated three staff positions. SportStation can now also compare the profitability of each of its sales channels on the Web, said Mercent Chief Executive Eric Best.

Previously the retailer had been able to manually process and send out about 200 packages a day, receiving each order as an e-mail and then entering customer data into a system. With the new system, SportStation was able to send out 1,200 packages a day in the fourth quarter.

As SportStation grows more sophisticated in managing its Web partners, it'll be able to drop ship to more e-tailers, said Bowen: "There are a number of starving Web sites out there looking for product."