Knowing its customer and its place in the market has allowed JD Sports to thrive while its rivals struggle in a tough environment
It has doubled revenues while competitors’ sales flatline and, as operating profit rockets by 61% year on year in the six months to 3 August, JD Sports is leaving other retailers in the dust. In June, it joined the FTSE 100 for the first time. Meanwhile, rival Sports Direct reported a 6% fall in EBITDA for the year to 28 April, and Schuh called in auditors after its pre-tax profits fell by 9.6%.
What is the secret of JD Sports’ enduring success, even during tough economic times?
A representative of one clothing label that works closely with JD says: “It is the good mix of brands, opening in the right markets and providing a great experience in store. Plus its social [media] is really good. [JD] does all the right events, from [collaboration with tourism company] Ibiza Rocks to boxing [matches].
Observers agree that a combination of factors has underpinned JD’s continued growth, from the emphasis it places on maintaining excellent relationships with the labels it stocks, to its ability to stay ahead of consumer behaviour trends. Long-standing tie-ups with big brands – in particular Nike and Adidas – have allowed JD to gain sought-after exclusives, justifying the often-premium price tag for the products.
Beyond its store offer, its measured approach to expansion in the UK and abroad have allowed it to increase its presence without over-extending itself.
While many other retailers have slashed prices to drive sales, JD has preferred to position itself as a go-to destination for full-price, premium product.
The chairman of one men’s and women’s fashion retailer observes: “Sports Direct vacated the [premium sportswear] field and has clearly upset all the brands [by discounting]. It’s left the full-price part of the market to JD. JD has used its strengths and leadership to dominate that market.”
Announcing its results last week, JD executive chairman Peter Cowgill said improved conversion rates reflected customers’ “increasingly positive reaction” to its “elevated multichannel proposition, where a unique and constantly evolving sports and fashion premium brand offer is presented in a vibrant retail theatre with innovative digital technology”.
JD’s focus on understanding its customers to garner this “positive reaction” has been crucial. As the clothing brand representative puts it: “Its strategy of segmenting the customer is designed to not just keep pushing a generic message to their customers – it’s very individual messaging. It drills down and targets the right message for different genders, ages, mums, dads and teens at the right time. It’s nowhere near perfect, but it’s streets ahead of everyone else.”
The dominance of streetwear across all parts of the fashion market has helped. Sneakers and other athleisure products have become big business, and JD is the self-declared “undisputed king of trainers”.
They learned earlier than anyone else to communicate with the young lad or girl who is switched on to trends
Retail analyst Richard Hyman says JD has enjoyed an advantage over rivals thanks to this market positioning: “Twenty-five years ago, it would be rare for anyone to wear trainers to work, [but] now almost anything goes. As our lives become more casual, JD has become less a sports specialist and more a casual retailer, and that plays to its strengths.”
Another label that works with JD says: “There is a simple formula that I think they got right. They learned earlier than anyone else to communicate with the young lad or girl who is switched on to trends. They do a lot of business with the big sports brands that are the powerhouse of the business, and they achieved that by curating exclusives.”
James Yacoub, retail analyst at GlobalData, says that celebrity endorsements have also been vital: “[JD] has collaborated with rappers who are hugely influential in regards to sportswear: for example, the launch of [British hip-hop artist] Bugzy Malone’s clothing line.”
As part of its strategy to lure trend-hungry consumers, JD has paid attention to its store proposition. Last month, it opened an 8,000 sq ft superstore in Essex shopping centre Eastgate. The acquisition of Footasylum in March has also arguably cemented its hold on the high street. The Competition and Markets Authority is currently investigating the merger, and on 19 September referred it for further investigation.
GlobalData’s Yacoub says: “JD Sports typically hires young employees who are relatable to its typical shopper, while also creating an in-store environment that appeals to its young urban audience, with appropriate music, as well as great visual merchandising. It has also invested in promoting classic 1990s brands such as Ellesse, which are on trend and in demand among young consumers.”
When it comes to stores, JD is a rare example of a retailer that is not culling its portfolio because of dwindling revenues or previously over-optimistic expansion. It has used its relatively strong position to negotiate better terms from landlords.
We can’t sit still and think we have cracked it. We are constantly working on our proposition
Neil Greenhalgh, JD Sports
However, Hyman says the retailer needs to find the right balance with its stores: “JD has room to grow, and to re-site its existing stores to better locations. There aren’t many takers for excess stores at present, and JD is one of a small number of retailers who can grow. Retailers have to be aware of where things will be in two, three or five years’ time. Reaching optimum and going over optimum [number of stores] can happen very quickly.”
Neil Greenhalgh, group chief financial officer at JD, notes that the retailer is still seeking to improve its store offer: “Footfall has been flat in the UK, but we have seen improved conversion, which is a good sign, as it is a reflection of our attractiveness to our customer and the experience we are giving them. But we can’t sit still and think we have cracked it. We are constantly working on our proposition and investing in our portfolio.
“We have large flagships not only in London but also in Manchester, Glasgow, Newcastle, Birmingham, Belfast and Dublin – all of the key cities present a compelling offer.”
International expansion continued apace at the retailer during the six months to 3 August. There was a net increase of 23 JD stores across Europe, seven in the Asia-Pacific region and six in the US. It has also made international acquisitions: last year, it paid £400m for US retailer Finish Line in 2018 and bought the chain Sport Zone, which has stores in Spain, Portugal and the Canary Islands. It also performs well in Germany.
The clothing brand that Drapers spoke to says JD’s strength could be replicated in other markets: “If you compare JD with other stores, particularly in Germany, it has no rivals. It is opening in Korea and Spain – that is the way to go.”
Greenhalgh says it is seeking to implement lessons from the UK in its international operations, particularly in the US: “We are taking the commercial disciplines we have in the UK in buying and merchandising, which are driving the business forward, and we’re transferring them to the US business. Sales are up 5%, so it is starting to work. It is taking those basic disciplines, continual investment in our proposition and staying close to the customer that is fuelling growth.”
Ultimately, it is this awareness of “basic disciplines” that is allowing JD Sports to grow, even as competitors struggle.
The Drapers Verdict
JD Sports has responded to changing consumer demand by investing in the right areas, including premium product and a marketing strategy that includes exclusive product and celebrity tie-ups. Its relationships with some of the world’s biggest sportswear brands are the envy of its rivals.
It knows what its customers want, and how, where and when they want to buy it, and focuses on them relentlessly.
There is no doubt that it is also riding high on the broader sportswear boom, but underneath that is a solid business model. Its international expansion has been considered, as has its investment in stores.
Others on the high street have much to learn from its approach.
JD Sports results by numbers
- Group revenue up 47% year on year to £2.7bn in the six months to 3 August
- EBITDA up 37% to £235m
- Operating profit up 61% to £200m