The nature of the relationship between suppliers and retailers generates many column inches in the business and academic press. Nowhere is this more evident than in the sportswear industry.
I was reminded of this by some recent developments in this sector recently. In the red corner, we have powerful global branders such as Nike and Adidas. In the blue corner (in the context of the UK sportswear and accessories market) JD Sports and Sports Direct. Before considering the issues, let us try to put this sector in context.
Two entrepreneurs: John Wardle and David Makin (hence the name JD Sports) opened a shop called Athleisure, in the 1990’s in Manchester. It focused mainly on selling Lacoste trainers and Fred Perry shirts. In the intervening decades, it has become the retailer of choice for Nike and Adidas.
Stephen Rubin, the main person behind the Portland Group, gained control of JD Sports in 2005. He paid £45 million for a 45 per cent share. Today it is worth £3.2 billion.
Arguably, the most “high profile” retailer in this sector is Sports Direct. Its owner. Mike Ashley has been one of the most controversial people in retailing over the past decade or so. Sports Direct has faced accusations of sharp practice in areas such as its sourcing policy and its management of human resources. It aggressively attacked JD Sports by engaging in widespread discounting – mainly by acquiring brands such as Everlast and Slazenger and using the higher margins from these brands to fund price cuts on Nike and Adidas brands.
Since 2011, this aggressive policy provoked anger from the latter branders. In retaliation, both Nike and Adidas introduced a categorisation policy when meant that their top ranges of brands were allocated to a select band of retailers. This excluded Sports Direct.
JD Sports recently put in a £90 million bid for Footasylum: a struggling trainers and sportswear company. This is currently the subject of an enquiry by the Competition and Markets Authority (C&MA).
JD Sports also stole a march on Sports Direct by offering Nike and Adidas more space in its stores and worked in collaboration with them in areas such as merchandise display. This led to exclusive contracts with both branders. It is estimated that JD Sports generates over seventy-five per cent of its revenue from Nike and Adidas.
By contrast, Sports Direct (at least up to recently) has placed little emphasis on store design and display, focusing on low prices as its main point of competitive differentiation. This may change in the future, as Ashley contemplates a “name change”, because of his interest in former House of Fraser and Debenhams retail stores.
The relatively “clean” image of Stephen Rubin, when contrasted against the “dodgy” appeal of Ashley, also helped to establish the right credentials for a strong relationship with both Nike and Adidas. Sports Direct has challenged the right of JD sports to acquire Footasylum as it would leave it in a very dominant competitive position in the market place.
Portland Group (run by Rubin) also retains powerful outdoor sports leisure brands such as Ellese and Berghaus in its extensive product portfolio. Rubin keeps away from JD’s operational management and prefers to act as a “sounding board” for senior management in that company.
In response, Ashley has recently embarked upon a re-positioning of its brand image. For instance, it has opened a number of larger and plusher outlets, in an attempt to change the perception that it is a discount retailer. Clearly, he also wants to change that perception in the minds of senior management in both Nike and Adidas.
JD Sports has expanded its operations in the US market by acquiring the retailer called Finish Line for £400 million. This presents an opportunity to fill those stores with better quality sports products. While this retailer has proved to be a loss-making operator, JD intends to upscale many of the acquired stores in the coming year or so.
It has also enjoyed success with its fashion arm: Sports Zone and Hot-T (in Iberian markets and South Korea respectively).
It intends open forty more stores in Europe and twenty in Asia-Pacific in the next two years.
Analysts identify JD Sport’s ability to protect its margins and, therefore, avoiding the need to slash price in order to move inventory off the shelves.
We can recognise the strength of the relationship between JD Sports and Adidas through the queues of people waiting outside its stores to purchase a pair of Yeezy Boost 350 V”’s recently. It collaborated with the rap star Kanye West and Adidas. It worked on the principle of “scarcity” by ensuring that demand greatly exceeded supply. It charged a retail price of around £150 and the popularity of this product could be ascertained from the number of individuals who subsequently sold on their purchase online.
JD Sports recognises the value that the physical store plays in cementing its image. It allows it to showcase the main products and newest editions from Adidas and Nike. This reinforces the view that shopping is still a social activity for many of its customers.
It has employed an aggressive strategy with its property owners, in terms of negotiating its property portfolio. It focuses in particular on avoiding long-term, inflexible leasing agreements. The average lease for one of its stores is around four years.
It continue to invest in the “in-store” experience by making greater use of digital technology allied to its strong brand portfolio.
Senior management argue that its focus on strong, global brands insulates the retailer from the pressure to discount. The use of digital technology reinforces and enhance the shopping experience and allows JD Sports to concentrate on fashionability rather than price. Digital technology also blurs the distinction between online and offline activity. It creates a strong attempt to provide a seamless “omni-channel” experience.
Arguably, it was one of the first sportswear retailers to recognise the concept of “athleisure”. In this case, shoppers increasingly view sportswear as something that can be worn in the context of “non-sports-based” activities such as casual and work wear.
Its value to the likes of Adidas and Nike cannot be underestimated. It is Nike’s second largest global customer behind Foot Locker. Although it must be acknowledged that sales of Nik’s brands have declined in the case of Foot Locker over the past decade. It was overtaken by sales from Nike Direct in 2015. This may pose challenges going forward. Will its younger shoppers continue to visit shopping malls?
It is clear that JD Sport’s strong relationships with key branders such as Nike, Adidas, Under Armour and Puma is critical towards its ultimate success. Acquisitions such as Blacks and Millets stores have also bolstered its strength in the market. Competitors such as JJB Sports disappeared in 2012.
Some commentators describe JD Sports as the “Sport is lifestyle” retailer. This would appear to be an accurate descriptor if its business operations.
It has positioned itself as a “go-to destination for full price premium product”.
Recently Nike notified many of the small retailers handling its brands that it would cease to do business with them by 2021. It justified this reversal in approach by stating that the way that they stocked its goods no longer aligned with its distribution strategy. In recent years, Nike has increased the minimum amount retailers need to spend to keep receiving its products. This may or may not work to the advantage of JD Sports.
In an era of social media influencers, it would appear to have tied in with relevant individuals. It recently launched the British hip-hop artist Buzzy Malone’s clothing line.
In summary, we appear to be looking at a very successful retailer that has sustained its popularity over the past decade or so.
Are there any “clouds on the horizon”?