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Gloves come off in fight for sports market

As Sports Direct unveils its first post-float trading results after a rocky ride with the City, its battle with rivals JD and JJB Sports is causing major upheavals in the sportswear sector

There is no football World Cup this year, but that has not kept the sportswear market out of the retail industry spotlight. Sports Direct's first trading announcement since it floated in March is one of the most eagerly awaited on the stock market.

Owner Mike Ashley has been described as secretive and mysterious. But for someone who shuns the spotlight, his corporate dealings since floating the business have sparked a stream of controversy and many column inches in the press.

His discount retail model and no-nonsense approach to deals has long been admired from many in the sportswear industry. But this week Sports Direct announced that "exceptionally difficult" trading had impacted on sales in May, June and July.

The poor performance has taken the heat off rival JJB Sports, whose 4.1% dip in like-for-like sales revealed last week looks relatively healthy in comparison.

Some observers believe the downturn at Sports Direct is inevitable. Pali International analyst Nick Bubb says: "It was pumping up sales to unsustainable levels last year with all the discounts. You can cram stores full of stock, but you can't keep having closing down Sales. There will always be a trade-off in terms of gross margin."

Sports Direct's intensely competitive price-driven offer has been one of the main forces in shaping the UK sportswear market over the past five years. Its pile it high, sell it cheap approach, offering big brands at large discounts, has put huge pressure on rivals JD Sports and JJB. The result has been a desperate attempt by the latter two retailers to carve out a position for themselves away from the melee.

The John David Group, which traditionally operated at a higher price level, has been the most successful, by moving more into the fashion arena. Dropping the "sports" tag from its JD Sports fascia, it has focused on fashion brands such as Timberland, Boxfresh, Rip Curl and Henri-Lloyd, as well as more conventional sports brands. Like-for-like sales rose 7.5% for the 12 weeks to April 21. Profit before tax was up 51% to just over £25 million for the year to January 27, while turnover rose 8% to £530.6m. However, the company said the rest of the year was likely to be challenging.

JJB Sports has eased its reliance on a price-led offer and shifted towards more specialist product with its "Serious About Sport" mantra. After a dalliance with outdoor brands, it has introduced a more technical-led offer, including US brand Under Armour, and has strengthened its relationship with Nike and Adidas by rolling out shop-in-shops.

Along the way, consolidation has seen a raft of smaller sportswear firms swallowed up, with Sports Direct snapping up Hargreaves, Gilesports and Streetwise Sports, and JD acquiring Allsports. But the result seems to be a more settled market as the big players find their space.

Some observers feel that the consolidation has put pressure on the big brands and has led to a stronger focus on developing own labels. One sportswear operator says: "There has been a lot of consolidation and there used to be a lot of sports indies. But it has been tough for brands too, because they now have fewer distribution channels, and sports retailers are increasingly developing own-label offers. Brands are worried about losing their influence. The problem is whether they should continue with technical innovations, research and endorsements when it is becoming a value-driven sector in the UK."

Nike and Adidas are both believed to have rejigged their UK distribution policy as a result of the consolidation, to protect brand equity. Both are rolling out shop-in-shops across JJB Sports, while cutting back supply to the more value-driven Sports Direct.

The big three - JJB, JD and Sports Direct - have been developing their own-brand portfolios, which provide higher margin product, as well as stocking crowd-pullers such as Adidas, Nike and Reebok.

Ashley already owns a raft of brands including Kangol, Dunlop and Slazenger. He bought Lonsdale last month and is in the process of taking over boxing brand Everlast. Meanwhile, JD Sports' own brand McKenzie has been a good performer, and has been joined by Brookhaven, Rivington and womenswear label Frisk in the past year.

JJB Sports deputy chief executive and former Ashley cohort Chris Ronnie is embarking on a brand review at the chain, with more own labels a key part of the strategy. He bought a 29% stake in the business, backed by Icelandic investment group Exista, from JJB Sports chairman Dave Whelan last month.

JJB may be suffering from a drop in sales of replica kit, but total like-for-like sales were up 1.4% for the 24 weeks to July 15. The retailer's respite is due to a more restrained discounting strategy at Sports Direct, while JJB has been taking steps to move away from the price war and carve a niche as a mass-sports specialist.

However, this is not necessarily evidence of the market becoming more stable. Bubb says: "People are disillusioned with Sports Direct, JJB isn't performing well and JD still has problems. The sportswear market hasn't been a licence to print money recently. The price war has levelled off and things are settling down, but I suspect it won't last. It all depends when Sports Direct presses the price button again."

Meanwhile, the controversy continues. JJB Sports sought assurance that Ronnie's stake in the business was not backed by Ashley - who is believed to retain a stake of about 10% in JJB Sports - to stem rumours that he could make a bid.

Meanwhile, Ashley has threatened to call an EGM and provoke a boardroom coup at Blacks Leisure over the outdoor group's proposal to sell boardsports chain Freespirit. Rumours abound that Ashley will bid for the whole group, adding to his 29% stake. In the past week Ashley has also been linked with a bid for Foot Locker.

Whatever happens, it is likely the sportswear market will continue to hit the headlines. One rival sportswear insider says: "Sports Direct is growing. It's a very successful retail model. It's not a sportswear thing, it's just part of the larger rise of value retailers. The supermarkets haven't had an impact other than on replica kit because they can't get the brands, but if they do things could all change again."

THE SPORTSWEAR BIG THREE

SPORTS DIRECT

Stores: 300

Brands: Adidas, Nike, Reebok

Own labels: Antigua, Dunlop, Kangol, Karrimor, Lonsdale, No Fear, Slazenger, Voodoo Dolls

Like-for-like sales: none given. Total sales up 12.8% to £1.35 billion for year to April 27.

JOHN DAVID GROUP

Stores: 400

Brands: Adidas, Animal, Crocs, Nike, Timberland

Own labels: Brookhaven, Frisk, McKenzie, Rivington

Like-for-like sales: up 7.5% for 12 weeks to April 21

JJB SPORTS

Stores: 400

Brands: Adidas, Nike, Puma, Reebok

Own labels: Lotto, Olympus, Patrick

Like-for-like sales: down 4.1% for 24 weeks to July 15.

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