Pressure is mounting inside the Danish and Spanish cooperatives of Intersport to switch to a more capitalistic structure, following the example of the Intersport licensees in a few other countries such as Norway, Finland, Switzerland and Italy. The proponents generally feel that such a structure can help the affiliated retailers obtain more bank financing, improve purchasing conditions and facilitate decisions on marketing and other programs.
At the general meeting of Intersport España earlier this month, which was attended by about 30 percent of the members of the Spanish cooperative, a resolution was passed with 96 percent of the votes to pursue a project to create two new companies, owned by all the members in yet-unspecified proportions, that would take over the existing business.
One of the two companies would own and manage the present assets of the cooperative. The other one would handle all its purchasing activities, focusing on retailers that wish to use Intersport for a maximum of orders. Officials said that the new structure may become operational at the beginning of 2011. They also indicated that the cooperative may readjust the number of its 110 affiliated members and 328 stores to focus on the most profitable ones.
Meanwhile, three retail members of the Intersport Danmark (IDK) cooperative are proposing the establishment of a new ownership structure in IDK. These three retail members, which currently generate annual sales of around 500 million Danish kroner (€67.2m-$82.7m), or around 40 percent of the total turnover of IDK’s members, would merge their companies with IDK. The remaining 60 retail members would continue to hold shares in the balance of IDK, and they would remain owners of their own shops.
The three shareholders are OBI Sport, Bgild Sport and HC Sport. Together, they own 30 stores and eight dealerships of Sports Direct, the B2B operation recently acquired by the Danish cooperative. OBI Sport, which has 18 stores, is run by Kurt Larsen and his family. In the 1990s, he had sold his stores to Gresvig, when the Norwegian retail group entered the Danish market for a while, but then he bought them back.
Made at IDK’s recent annual meeting, the three members’ proposal is due to be discussed with the other members of IDK in September. It can be interpreted as a compromise with the kind of integrated retail chain that the members had agreed to form in 2008, selling most of their assets to an Icelandic investment fund, Arev. The fund was going to take over the entire business of IDK and the affiliated stores and do the same with the sporting goods retail operations of Sport Danmark, the Danish buying group affiliated with Sport 2000 International whose members trade mainly under the Sport-Master banner. However, the financial crisis stopped the takeover process.
For IDK, the proposed change of ownership comes after three consecutive years of financial losses that have reduced its debt/equity ratio from 43.4 percent to 27.9 percent. While the losses of the previous two years were partly attributed to extraordinary charges related to Arev’s failed investment, the 2009 loss was caused by the installation of a new IT system at IDK and all its retail members. Company executives pointed out that IDK generated a positive Ebitda margin before these charges throughout the period.
IDK’s gross revenues declined last year to DKK 23,749,000 (€3.2m-$3.9m) from 25,541,000 DK in 2008, but the members’ actual sales rose by an estimated 3 percent in spite of a declining market. The company booked a net loss of DKK 3,427,000 (€460,425-$567,100) for the year, but this was a major improvement over the DKK 9.6 million loss of the previous year, and the company started to generate positive cash flow for the first time in five years and made a profit of around DKK 4 million (€537,400-$661,930) before extraordinary items. The management expressed confidence that the final result will be positive this year.
Better results are also expected for this year at Sport Danmark, which has reported a net profit of DKK 2,412,000 (€324,050-$399,150) for 2009, compared with a loss of DKK 3,474,000 in the previous year, allowing the company to reach a higher debt/equity ratio of 35.99 percent. The progress was due to a variety of factors. Gross revenues rose sharply to DKK 24,512,000 (€3.3m-$4.1m) from DKK 18,374,000, thanks in particular to a stronger business with private labels and exclusive brands, but the members’ sales rose by only about 3 percent.