The upheavals to come in the Swedish sports market have precipitated far-reaching strategic changes at Intersport Sverige, which is going ahead with the near-complete integration of its stores and introducing the Budget Sport banner in the country next year.
Budget Sport, a low-cost format that has already been introduced by Intersport in Finland and Switzerland, will open for the first time in Sweden in March, in one of the outlet centers near the Norwegian border. The pilot store will be run as a franchise, but others are meant to be fully owned by Intersport Sverige. Fredrik Johanson, the buying group's general manager, said he saw potential for about 15 such stores around Sweden.
This comes as the Swedish sports market is bracing itself for intense battles in the coming years – beyond the long-standing rivalry between the three market leaders, Stadium, Intersport and Team Sportia. XXL Sport, the hard-hitting Norwegian retailer specializing in extra-large stores, declared two months ago that it intended to open 50 stores in Sweden in the coming years, although this was regarded as wildly over-ambitious by many Swedish retailers. Décathlon will open its first Swedish store in Stockholm in the coming weeks, with a plan to build up a network of about 10 Swedish stores in the next few years. And Usports, a third new sports megastore concept, is to be inaugurated in Malmö this week, as reported below.
To strengthen their own business, all but four of the retailers running 157 Intersport stores in Sweden have agreed to the integration plan put forward by the buying group's management earlier this year: It will acquire 91 percent in each of the nearly 90 retail companies running 153 Intersport stores in Sweden – in exchange for a mixture of cash and shares in Intersport Sverige, for an amount based on the estimated value of the stores. The members are setting up holding companies to facilitate the change in ownership, which should be completed by the start of next year.
Since Johanson took over the helm in 2006, the buying group has already taken many measures toward the integration of Intersport stores, including the acquisition of majority stakes in several of its member retail companies. The buying group slashed the number of its suppliers from about 400 to 125 in the last four years, and imposed near-complete adherence to its central purchasing: Virtually the whole range carried in Intersport stores is bought by the central organization. In fact, Intersport Sverige has introduced penalties for individual retailers who still want to buy products that are not part of the central range. With the acquisition of the stores, Intersport Sverige hopes to further tighten its grip on the flow of merchandise, by fully dictating the quantity and delivery schedules of the products to be sent to retailers.
The restructuring moves implemented so far have already helped to raise the average operating margin before amortization (Ebitda) of Intersport's members in Sweden by 4 percentage points, from about 3 percent in 2006 to 7 percent in 2010. This was admittedly a strong year owing to favorable weather, and Intersport's sales are expected to remain flat this year. The longer-term target for the buying group is to achieve an Ebitda margin of 10 percent.
A similar move was made recently by Intersport in Spain. Overall, the reasoning in Sweden is that the joint ownership of Intersport stores in the country will encourage yet more solidarity and common efforts by the retailers in the face of the growing competition, while supporting investments that benefit all in areas such as logistics and IT. Online retailing, which Intersport Sverige has yet to offer, is another likely target for investment.
