Kesko, the Finnish shareholder and licensee of Intersport International Corporation (IIC), is going to open the first Budget Sport retail store early next month in Vantaa, a suburb of the Finnish capital. With a net retail surface of 3,200 square meters, it will be the biggest sporting goods store in Helsinki’s metropolitan area and one of the biggest ones in the Nordic countries. IIC views Kesko’s €10 million investment, which includes the building, as a pilot project for the possible roll-out of 30-40 other Budget Sport stores in seven countries by retailers affiliated with Intersport over the next four years.
Prices will be generally lower at Budget Sport than those charged for current products in most other specialty stores, including those trading under the Intersport banner, but the level has not yet been determined. In presenting the project to the Finnish press this week, Franz Julen, chief executive of IIC, said the new format is a response to a growing polarization in the market between hard discounters and service-oriented stores that offer expert advice. This evolution means that it will be harder in the future to reach all kinds of consumers with one single banner like Intersport, which belongs to the second class, even if it runs special promotions.
In our opinion, such a polarization is becoming more and more apparent in mature markets such as the UK, where Sports World and the supermarkets are taking market share away from established retailers such as JJB Sports. It’s already a fact of life in France, Spain and Italy where Décathlon has a strong market position with its low-price policies. However, Intersport officials liken Budget Sport more to XXL of Norway, which is said to be preparing a move into Finland, than to Décathlon, whose strategy is largely based on the sale of private label products that represent more than 50 percent of its turnover.
Intersport’s private brands will only represent 25-30 percent of sales at Budget Sport, a ration which is slightly higher than that of a normal Intersport store. The rest will consist primarily of a combination of current merchandise and close-outs by the normal brands. The vision behind the Budget Sport concept is to offer customers premium sporting goods products at the lowest possible prices, by minimizing operating costs and by purchasing items in big quantities. Along with the normal product categories available in most sporting goods stores, the first pilot of Budget Sport will also offer wide ranges of products for such outdoor activities as hunting, fishing and canoeing.
IIC says it has selected Finland to pilot the project because Intersport is the clear market leader in the country and because Kesko has a vertical approach to the market with strong back-up functions and retail know-how. Jussi Mikkola, general manager of Intersport Finland, says the timing is perfect to bring such a completely new concept to the traditional Finnish sporting good market, which is relatively high-priced. It is increasingly coveted by foreign operators of large sports superstores such as Stadium from Sweden and Sportlab from the Baltic countries.
Kesko expects the first store to generate annual sales of around €12 million. The Finnish retailer intends to open an additional 6-7 Budget Sport stores throughout Finland if the pilot project goes according to plan. Kesko currently operates 59 Intersport stores and 37 smaller Kesport stores. On average, its Intersport oulets measure 800 square meters and have more than €3.5 million in annual revenues.
The first Budget Sport stores outside Finland will probably start up in the 1st half of 2007. Future units will measure between 1,000 and 3,000 square meters. Depending on the number and their size, they could generate total annual sales of €300 million by 2011.
