While the latest reports by U.K. retailers are turning into a horror series, the JD Sports Fashion group again unveiled an impressive performance, with a comparable sales increase of 6 percent for the half-year ended on Aug. 2. Due to the company’s takeover last December of Bank, a fashion retailer with 49 stores, the British retail group’s reported sales jumped by 19 percent to nearly £299 million (€377.3m-$553.6m).
The retailer’s sports division, which groups its JD and Size sports stores, scored a comparable sales increase of 5.9 percent for the half-year, while the fashion division, made up of the Scott and Bank banners, saw its comparable sales rise by 6.7 percent. In the six weeks since the end of the period, the JD and Size chains lifted their comparable sales by 3.7 percent, against 14.8 percent for the fashion stores.
The rise may be partly due to the fact that the retailer attracts young consumers who are least affected by economic woes, having neither children nor house mortgage loans. Still, its performance was chiefly attributed to JD’s consistent efforts to refresh its banner and to differentiate its product offering. In the six-month period, 20 JD stores were entirely refurbished at a cost of £7.3 million (€9.2m-$13.5m), moving further away from the layout of a traditional sports retailer and toward the snazzy, brand-driven look of lifestyle stores. Some of the investments have been spectacular, as in the case of JD stores in the Bluewater shopping center and in Dublin.
At least until the end of the current financial year, JD will revamp one store per week along the same lines. It should then have transformed 37 stores at a cost of £12.2 million (€15.4m-$22.6m). The sports division has also opened nine new stores, including a unit of 1,115 square meters at the new Liverpool One center, and several more stores should be added before the end of the year. Another nine were closed but the division’s total retail surface increased.
In a few cases, the size of JD stores was reduced to make space for another of the group’s banners next to it. So far the experiment has worked well, as the sales in the JD store remained stable and the group reaped added sales from the store next door. This fits in with the group’s finding that JD stores perform particularly well when located next to stores such as River Island, a rival fashion retailer, creating a compelling shopping destination.
As for the brand offering, it has been streamlined to remove under-performing sports brands and to add yet more lifestyle brands and ranges. For example, JD has set up highly visible shop-in-shops for Bench, a trendy lifestyle brand, in 47 of its stores. K-Swiss launched its apparel range exclusively in JD sports stores in July.
Another highlight is the exclusive introduction of a new version of the Adidas Safety Wear range, which became a hit in the late ’80s at JD stores. The relationship between JD and Adidas Originals has been intensified over the last quarters, with 42 shop-in-shops fitted so far. The partnership sometimes led JD to fill entire floors of two-story outfits with Adidas Originals products – making them look almost like stand-alone Originals stores.
Furthermore, JD is continuing to invest in its private labels, McKenzie and Carbrini, with striking advertising and offbeat marketing. McKenzie is heavily advertised through outdoor campaigns and targeted publications such as New Musical Express, Match and Zest. It has already become the best-selling brand of women’s apparel at JD, and the company has recruited a designer from Levi’s to ramp up its female youth appeal. A new fashion range called McKenzie Denim is to be launched later this year, supported by 120,000 look-books that will be given away with the October edition of FHM magazine.
As for Carbrini, a more basic range of sportswear, it has struck deals to become sponsor and kit supplier of four British football clubs (AFC Bournemouth, Luton Town FC, Charlton Athletic FC and Oldham Athletic FC) and shirt sponsor of Dundee United FC. The move is intended to gain exposure among male adults, while Carbrini is now JD’s best-selling junior brand. Replica shirts of the four teams for which Carbrini is a kit supplier will be sold in all JD stores – along with a small range of football boots, the only functional products still on offer at JD.
As average retail prices are on the slide for the fifth year running, JD is concentrating on footfall and conversion rates. Aided by the introduction of hand-held scanners and footfall counters, staff members have been heavily trained over the last months to persuade customers to buy.
The group’s management was equally satisfied with Size, which has found its market by concentrating on small ranges of fashion-oriented sneakers. Barry Bown, the group’s chief executive, estimated that it could easily expand the network to 75 Size stores over the next years once the real estate market became less tense.
The share of private labels in the sales of JD’s sports stores was placed at between 25 and 30 percent, consisting almost exclusively of apparel. The retailer has obtained a new license from its main shareholder, Pentland Group, for Red or Dead women’s apparel, to be sold in Bank stores. And in the next years, JD will strive to increase the share of its private labels in footwear, which strongly motivated its acquisition of Nicholas Deakins, a brown and black shoe brand, earlier this year.
On the fashion side, the group continues to clean up Bank and to rationalize its stores. Although much improvement has been made, JD managers said that least 12 Bank stores would be closed. The management teams of Scott and Bank have both moved to the JD head office in Bury.
The group’s gross profit margin increased to 48.2 percent, up from 48.0 percent at the same time last year. Operating income before financing costs, exceptional items and results of joint venture rose by 54 percent, amounting to an operating margin of 4.4 percent, up from 3.4 percent for the first half of last year.
However, the group’s operating results were considerably reduced by an operating loss of £3.5 million (€4.4m-$6.5m) at the fashion division, attributed entirely to Bank. The sports division alone reported operating profit of £16.5 million (€20.8m-$30.5m), up from £10.7 million for the same period last year.
The line in the accounts related to the results of joint ventures showed a loss of £200,000 (€252,400-$370,300), mainly because of the losses of Focus, a U.K. licensing and distribution company in which the JD group acquired a 49 percent state last December. The company had been stripped of some of its most interesting business before the transaction with JD, since its license with Converse was placed into a separate vehicle. Furthermore, JJB, the U.K.’s second-largest sports retailers and Focus’ largest customer for Le Coq Sportif, another brand licensed to Focus, made it known that it would stop buying the brand.
The final results were weighted down by exceptional items of nearly £3.3 million (€4.2m-$6.1m), of which £2.0 million (€2.5m-$3.7m) were for the write-off of the remaining goodwill for the Hargreaves stores in U.K. airports, acquired back in June 2006. It was written off as heightened airport security reduced space for these stores and some concessions might be terminated early.
Group inventories rose by £10.8 million to £67 million (€84.5m-$124.0m) in the course of the period because of earlier deliveries of private label merchandise and the acquisition of a 51 percent stake in Topgrade, a wholesaler of sports and fashion products, which contributed sales of about £6 million (€7.6m-$11.1m) in the reporting period.
After tax, group profit ended at £6.1 million (€7.7m-$11.3m), up sharply from £3.5 million for the same period in 2007. The results prompted at least one important shareholder to raise its own stake in the company: Sports Direct International (SDI), the leading sports retailer in the U.K., lifted its shareholding in the JD group beyond the threshold of 13 percent. Peter Cowgill, chairman of the group, said he had spoken with Mike Ashley, majority shareholder of SDI, about his intentions the same day, and was assured that he merely regarded the move as a money-making opportunity.
