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Banking on young fashion

As JD Group buys Bank and JJB snaps up Original Shoe Co, what effect will this have on the rest of the sports sector?

First John David Group acquired the Bank young fashion chain last week, then this week JJB Sports announced it was buying the 60-strong Original Shoe Company chain from rival Sports Direct International. But what has suddenly sparked this interest in young branded fashion from the sportswear chains?

Trading in the branded fashion sector has been rocky. Signs of tough conditions include losses at Bank, Scotts and USC, with the latter forced to cut back womenswear because of high street competition.

In that context, JD Group’s £18.5 million purchase of Bank, which it bought from the chain’s management and investors Phoenix Equity Partners, was a surprising move. JD has had an uninspiring track record in the young branded fashion market, having struggled to make several fascias work, including AV, Ath-Leisure and Open. The group bought young fashion chain Scotts in 2004, but performance has been disappointing and the business is not expected to break into profit before 2009.

Nevertheless, JD seems to have a clear vision of the advantages the Bank deal will bring. The first is the ability to grow a large-scale branded business, with some suppliers predicting it could support up to 150 branches. What’s more, JD will also be able to build on its relationships with fashion brands such as Timberland and Henri-Lloyd, as well as stalwarts including Nike, Adidas and Puma that already have a presence in its core store chain.

Young fashion brands have reacted positively. One supplier says: “The trade has reacted with relief. There was a worry that it would be someone with an aggressive retail style, such as Sports Direct owner Mike Ashley, who would buy into Bank.”

If JD Group’s acquisition was unexpected, JJB’s move to buy Original Shoe Company from rival Sports Direct International was even more of a surprise, and it is being treated in the industry with a great deal more scepticism. One supplier believes JJB Sports’ competitive positioning and re-entry into the branded fashion market – it closed its Icon fashion chain in 2006 because of poor performance – puts it at a disadvantage.

“JD is majority owned by Pentland Group, which does the best job in the branded fashion and footwear sector. JJB doesn’t stand a chance of competing,” predicts the supplier. “At least JD has bought Bank, which is a very well-run company with clear strategic direction. Original Shoe Company has never trodden a clear path or had the money behind it to be convincing.”

An industry observer says: “I can see why they would want to attempt it strategically. The JD area of the market is more profitable and is not facing the same pressures from the supermarkets that JJB is, but Icon was a flop. It was losing money because JJB wasn’t in the mentality of younger consumers. These are two completely different markets.”

Some City commentators view Original Shoe Company as a sideshow to JJB’s main preoccupations. Shore Capital analyst John Stevenson believes the main advantages lie in access to brands that are not in JJB Sports at the moment. However, he says the prime concern is the core JJB business, where profits have fallen from about £100m five years ago to a forecast £17m for the year to the end of January 2008. “Whether OSC is a distraction or not is a fair question,” he says.

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