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Winners and losers in the sports retail sector

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As the last decade faded and the new year celebrations came to an end, two retailers targeting the sports sector were in very different moods.

Waking to the hangover of poor Christmas sales and the queasy feeling you get when you are forced to renegotiate rolling credit facilities, JJB was understandably feeling worse for wear.

In contrast JD Sports was in spritely mood, with no visible after-effects of what must have been at least mild seasonal celebrations as like-for-like sales rose 3.1 per cent in the 48 weeks to January 1st.

The differing fortunes of these two competitors show the potentials and pitfalls that sports retailers have been faced with in recent times.

2010 has been hard going for many in the sector but JD Sports has seen significant growth in a tough market, thanks largely to developing its fashion offering aimed at teenage consumers.

Carly Syme, Retail Analyst at Verdict Research, commented: “JD has done really well with its young fashion offering because its average customer has few financial responsibilities and so their spending power has not been significantly affected by the economic climate.”

“2011 will be tougher due to the VAT rise and strong comparatives set last year but we expect the business to remain resilient.”

On the face of it the whole sports retail sector is set for a challenging year ahead, with global prices for cotton, oil and other commodities all very high and non-food sales being hit hardest by increasingly cautious consumers.

Despite these problems there is still optimism in the industry, with a recent Retail Gazette survey showing 59 per cent of sports retail employees anticipating stronger sales this year compared to 2010.

The survey also showed that 68 per cent of sector employees are either confident or very confident that their company’s management is currently pursuing the right strategy.

Most admit that the next 12 months will not be plain sailing however, with worries expressed by participants to the survey including the lack of a large sporting event in 2011 to boost sales, the government austerity measures and growing competition.

On this last point Jonathan De Mello, Head of Retail Consultancy at CB Richard Ellis, believes that sports retail professionals’ concerns are justified.

“In terms of fascias I think the sector is slightly overcrowded, only because you have other channels for purchasing sports products,” De Mello said.

“Not only are the niche players like Nike, Adidas and Puma coming in an opening stores but also the supermarkets are expanding their non-food offerings and some of this involves sports products.”

Grocers can undercut prices due to their bulk buying power and so speciality is increasingly becoming an important way for sports stores to justify their prices to their customers.

JD is cornering the market in teenage sports clothing, Sports Direct is the king of stack-em-high and sell-em-cheap and others are finding niches of their own to exploit.

Nike has opened a running-products-only store in Kingston-upon-Thames, and Sweaty Betty is establishing itself as a popular upmarket sports goods outlet.

Syme added: “Sweaty Betty is an example of an expensive store which justifies its prices by the quality of its goods, its strong customer service, and the special services it offers like organised running clubs. Its customers are buying into a lifestyle.”

Adaption is not as easy for some, with JJB’s restricted room for movement making it the most threatened of the major high street retailers in the sector.

De Mello said: “JJB’s problems are with its customers; they think why go to JJB? It is more expensive then Sports Direct but not as fashionable as JD, so what does it stand for?”

If it cannot undercut the budget offerings of Sports Direct and the like, it could try and improve its fashion items but Syme for one believes that JD’s success leaves little room for it in this market.

A change of Chairman, with Mike McTighe replacing John Clare, may bring about a change of direction but its actions will be restricted by financial limitations.

David Buik, Retail Analyst at BGC Partners, commented: “JJB Sports has been drowning in debt for such a long time.

“That fact rather ties its hands behind its back and does not allow it the luxury of a bold approach to the market or to take excessive risks.”

Although JJB looks precarious, standalone sports retail stores will be around for some time yet, even if branded stores start to replace some of the more traditional outlets.

Specialising and offering value for money seem to be the keys to unlocking success over the next year and as JD’s recent results show there is a strong consumer base for sports products and clothing.

“Sports casual wear is becoming more vogue as time goes by,” Buik added.

“Also, as we supposedly enter a period of austerity, sport could easily come out of the pack as a relatively cheap recreation or pastime.”

Published on Monday 24 January by Editorial Assistant

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