Sports Direct was founded as a single store in Maidenhead as Mike Ashley Sports in 1982. Today it’s the UK’s number one sports retailer, is worth £4 billion, has around 400 stores in the UK and is listed on the FTSE 100.
Key to the success of the Shirebrook-based company is a policy of high volumes and heavy discounting, which has a strong appeal to cost conscious consumers. According to NPD’s Online Consumer Panel, when UK customers were asked: “What influenced your purchase the most?”, respondents said “price” was the number one factor, followed by “the look of the product” and then “fit”.
Price slashing
During the January 2014 post-Christmas sales Sports Direct slashed prices by up to 90 per cent. Consumers were able to purchase a Slazenger polo shirt for £1.29 versus its original £12.99 price. Furthermore, while Nike’s Manchester City 2013/14 home shirt was being sold online for £52 by JD Sports and £55 by Kitbag.com, the same shirt was being sold for £33 on the Sports Direct website. At a time when consumers’ purchasing power is decreasing, they are more than likely to be alert to the massive discounts offered by Mike Ashley’s business.
In fact, according to NPD’s Online Consumer Panel, around two thirds of Sports Direct’s products were sold at a discount in 2013. The average across all retailers combined within the sports footwear and apparel market in the UK last year was 51 per cent.
How can Sports Direct discount in such a manner? In the past, private labels were of an inferior quality and received little marketing support from retailers. Nowadays, the quality and design of retailers’ own brands have improved, while they now also receive significantly more advertising support. The main benefit of selling own product is the significantly bigger margin that can be achieved.
Company acquisition
In the case of Sports Direct, as the company grew in size Mike Ashley purchased well-known brands such as Dunlop, Slazenger, Everlast, Lonsdale and Karrimor for relatively small sums. Year after year Sports Direct has improved its ranges and developed its offering in categories such as tennis, running and outdoor. Although own brands are sold at an attractively low price, they still manage to return a healthy margin. The margins achieved through its own products has allowed Sport Direct to reduce the profit generated via brands such as adidas and Nike, making the retailer’s offer appealing to the consumer.
This strategy has worked well so far and the increasing number of own brands in Sports Direct’s portfolio has enabled the company to gradually gain more control of its business. Nevertheless, this strategy has created tension with manufacturers such as Nike and adidas, who on occasion have been unimpressed to see their products sold at low prices.
According to NPD’s Online Consumer Panel, adidas and Nike products are sold on average £4 and £5 lower respectively within Sports Direct stores than in the rest of the sports footwear and apparel retailers in the UK. Furthermore, comparing Western European countries (France, Germany, Italy, Spain and the UK) reveals the average price of adidas and Nike product is lowest in the UK.
Brand erosion
Recently adidas announced its intention to withdraw Chelsea’s replica shirts from Sports Direct stores. This is driven by the fear the brand is being eroded by poor store experience and low pricing. The battle adidas has engaged in with Sports Direct is not surprising and is part of a global distribution strategy that began in 2012 aimed at taking back more control of the brand.
With strong growth year on year, Sports Direct has strengthened its negotiating power with manufacturers. The coming weeks might shed more light on who actually has the upper hand.
The NPD Group monitors the sales of sports footwear and apparel in many countries around the world. For more information contact the NPD Group sports team on 01932 355580.
