Its tough out there. Competition is fierce. Retailers are becoming brands, brands are becoming retailers. The industry is changing at pace. But is as bad as we think?
Last month JD Sport posted a record year as sales grew both in-store and online.
Revenues were up 33 per cent across the group to £3.1bn, while profit before tax grew 24 per cent to £294.5m.
“The investments we have made over a number of years in developing our multichannel proposition and driving improved buying, merchandising and retail discipline have ultimately led to the creation of a world class sports fashion business which combines the best of physical and digital retail on an increasingly global scale,” said executive chairman Peter Cowgill.
At the end of 2017 Sports Direct results were not quite as spectacular showing a profits drop to £45.8m from £140.2m with a rise in group revenue by 4.7 per cent to £1.7bn.
However, as Mike Ashley said: “Our high street elevation strategy is currently delivering spectacular trading performance within our flagship stores. We intend to open between ten and 20 new flagship stores next year. Whilst our reported profit before tax has been impacted by fair value adjustments and transitional factors such as the disposal of assets in FY17; our underlying profit before tax remains healthy. We will continue to invest for the long-term and our net debt has increased in line with management expectations.”
It becomes harder to gauge the results for the likes of DW Sports and Elverys as it does with Intersport and STAG, since they are not publicly listed companies. However based on general market information and the evidence presented above one could draw the conclusions that, as far as sports multiples are concerned, the market is trading quite strongly.
The picture at independent level, however, does not look so positive.
I have fond memories of my local sports shop. Serving all sorts of sports, with all sorts of stock.
Those days are long gone and we are now left with, on the one hand, the specialists and, on the other hand the generalists.
The latter category continues to face increasing pressure from all sides, whilst the specialists continue to survive in the same way that the specialist butchers and bakers can against the supermarkets.
Look a little closer and many commentators believe that Britain’s High Streets are in crisis with experts predicting that retailers are battling a “perfect storm” of pressures.
So why are things so difficult?
A) Incomes are under pressure
One big factor has been a fall in discretionary spending, spurred by rising shop prices and weak wage growth.
A near 15 per cent fall in the pound since the Brexit vote has pushed inflation over three per cent which has made imported goods more expensive, with those costs passed on to consumers.
Couple that with the fact that wages have been rising at a slower pace than inflation – and shoppers have less disposable income to spend in stores.
B) The move to online shopping
Online giants such as Amazon have had a huge impact on the high street as more consumers see online shopping as cheaper and easier than going to the shops.
And while overall retail sales growth is weak, online sales continue to shoot up across the sporting goods sector and retail businesses that have historically steered clear of the sporting goods industry have been swept up in the continued growth of athleisure putting the traditional sports retailer under even more pressure.
C) Sports shop environments
Too many High Street retail environments are stuck in the 1980s.
They are not relevant to today’s consumer and yet the owner cannot afford a shop refit. The result is poorly merchandised and presented stock. Lack of appeal. Lack of footfall, lack of business, and so the downward spiral continues.
D) Business rates
There has been plenty written lately regarding the pressure that rising business rates are placing on our High Street retailers.
Due to rise again in April – Business rates are a huge burden with trade body the British Retail Consortium suggesting that “Business rates are deterring investment in local communities, causing shop closures and job losses in hard-pressed communities and preventing retailers from delivering what their customers want in an efficient and cost-effective way.”
E) Too much debt
As a consequence of over expansion, many retailers are shouldering “high debt burdens”, says KPMG’s Mr Martin.
“There will be winners and there will be losers. But if you’re not good at online, if you’re not really rigid about your cost structure, there will be more challenges to face going forward and no doubt we will see further casualties.”
His comments, sadly, ring true within our own industry and a declining number of independent sports retailers looks like a trend that will be difficult to reverse.
The decline may be accelerated by the fact that we have a mature retail ownership base facing the choice of either continuing through these difficult times or exiting the business.
My concern is that, for more and more, the choice will be the latter.