The French sports retailing group caused disappointment as it unveiled a drop in sales and a deepening loss for the first half of the year, reflecting the depressed consumer climate in France as well as ongoing issues for the generalist Go Sport banner in the country.
The group’s overall sales fell by 2.2 percent to €348.3 million for the half-year, excluding activities in Belgium, which are being divested. The decline was due entirely to the Go Sport banner, which saw its sales fall by 6.4 percent overall, and by 7.4 percent on a comparable basis. A decline at Go Sport stores in France was partly offset by a sales rise of 20.9 percent in euros for the banner in Poland, up by 9.7 percent in zlotys. On the other hand, the group’s athletic footwear chain, Courir, enjoyed another strong half-year with sales up by 4.8 percent in reported terms, and by 11.8 percent in comparable terms.
Most worryingly for investors, Groupe Go Sport reported a substantial deterioration in its profits. The operating loss for the half-year reached €14.5 million, compared with €7.9 million at the same time last year.
The retailer’s gross margin crept up by 0.2 percentage points to 38.1 percent, but a shrinking gross profit caused by the lower turnover accounted for a decline of €2.4 million in the group’s operating profit. Another hit of €1.1 million was attributed to higher personnel costs. About half of this came from Poland, as Go Sport had to adjust the salaries of its staff in the country. The other half was due to bonus payments awarded to Courir’s staff on the back of their strong performance. The other major factor in the shrinking operating result was the higher level of rental costs, due to the fact that the Go Sport group last year decided to sell off some of its real estate and therefore has to deal with more landlords. This factor added €2.1 million to the operating loss.
The downturn at Go Sport in France was blamed on economic conditions in the country, where the declining buying power of the population has become an almost obsessive topic of conversation. This problem particularly affected out-of-town stores and sales of relatively expensive branded goods. The situation worsened markedly from the end of March. Furthermore, Go Sport’s French turnover was hit by its efforts to disgorge stock, often at heavily reduced prices. And it suffered badly from a botched switch to SAP in February, which caused major disruptions in deliveries and sometimes left stores without most-wanted products.
Go Sport is striving to compensate these issues by increasing sales of private label items. They already made up about 31 percent of Go Sport’s turnover and 47 percent of its sales in volume at the end of the period, helped by consumer appetite for relatively cheap products.
At the same time, Go Sport is narrowing its range of suppliers, which numbered no less than 300 last year – although about 62 percent of its sales were generated by just 12 suppliers. The number of suppliers was reduced by 14 percent in the first half of this year compared with the same period of 2007, for example by ditching the fishing tackle section and reducing Go Sport’s offering in horseback-riding equipment – a category in which Décathlon is particularly strong. The total number of SKUs on offer at Go Sport France was cut by 15 percent.
Furthermore, Go Sport has continued to tighten its relationship with customers who hold 1.9 million loyalty cards. They made up 32 percent of Go Sport’s sales in the first half of this year, an increase of 4 percentage points compared with the same time last year – and their average consumption at Go Sport stores was 39 percent higher than that of other customers.
Another initiative launched by Go Sport’s management is to renegotiate terms with suppliers, to make its ordering patterns more flexible. Amazingly, company managers said that all of their sales so far were pre-ordered. They are now working on cancellation terms that will allow them to adjust their in-store offering to seasonal demand.
On a positive note, Go Sport officials noted that the inventories of their French stores had decreased by 21 percent. This was partly due to the opening of an outlet store around Paris during the period, raising the total to three, and the company aims to open another four or five such outlets over the next months.
Meanwhile, Courir continued to race ahead. It increased its share of the French athletic footwear market to more than 11 percent, according to an NPD study quoted by the company. It benefited from heightened interest in the lifestyle ranges of leading brands, heavily marketed through co-branded campaigns. These initiatives will be stepped up over the next months.
The Courir flagship store on the Champs-Elysées was a strong illustration of the banner’s strength, with a 30 percent increase in sales since the store was revamped. Twelve Courir stores were remodeled during the period, meaning that 38 percent of the stores featured the chain’s enhanced concept at the end of June, and further conversions will take place over the next months. After two openings and three closures, there were 178 of the relatively small Courir stores in France at the end of June.
Expansion in Poland is encouraging the management to start opening new stores in the country again. For the time being it has 21 units there but hopes to open at least two more in 2009 and up to six over the next couple of years. Surprisingly, the share of private labels sold at Go Sport is smaller in Poland than in France, standing at about 15 percent of sales, but their volume increased by 14.4 percent in zlotys over the period.
Go Sport managers have also spent a lot of time in Belgium over the last months to clean up their business in the country. The Belgian business generated an operating loss of about €2 million for the six-month period, due to the country’s economic and political malaise as well as increased competition. Go Sport could not cope with the hard-hitting tactics of Sports Direct, which had some stores located in the vicinity of Go Sport stores but selling at much cheaper prices.
As previously reported, C&A has agreed to buy five of Go Sport’s Belgian stores: The sale will be effective for four of them in December, while the other one will be transferred sometime in 2009, along with the personnel. In the meantime, Go Sport has closed down two of its Belgian stores in the first half. Another store was closed in the Voluwe shopping center in July, and yet another is to close its doors this month. This leaves Go Sport with only two Belgian stores, in Hasselt and Messancy. They should also be disposed of, although the intricacies of Belgian legislation make it hard for the management to provide more details.
Franchising agreements led to further expansion with the opening of the first Go Sport store in Qatar. Another two Go Sport stores and one Courir store were opened in Saudi Arabia, lifting the total of franchised stores to 14 for Go Sport and 18 for Courir. Another franchising agreement was signed in Syria with the Kadimoda group.
The group’s debt levels were the target of sharp criticism at a meeting with financial analysts in Paris. Go Sport ended the period with net debt of €83.9 million, compared with €81.1 million at the same time last year. This was attributed to investments in store openings and the switch to SAP, as well as early payments to suppliers in order to obtain discounts. These payments accounted for extra liabilities of €12 million, while Go Sport also had to pay an extra €5 million in tax on the sale of real estate.
Still, after the upbeat presentation held earlier this year on new strategies at Go Sport, company managers readily admitted that the results were disappointing. They vowed to go ahead with the rationalization of the offering in Go Sport’s French stores, to improve service levels and sharpen their positioning as a destination for urban shoppers – as opposed to the family-oriented perception of Décathlon. Go Sport also wants to tighten its relationship with suppliers by setting up more shop-in-shops.
But given all the remaining issues and market troubles, Go Sport is also taking some more drastic measures such as the replacement of its marketing manager and a freeze on any regular new store openings for the Go Sport chain in France. The company will continue to close down loss-making stores and to revamp others. For the time being it has 125 Go Sport stores in France, after four closures and three openings so far this year, including one outlet.
