Survival of the fittest: JJB Sports vs. Sports Direct

17th Aug 2012

 

As JJB Sports’ future looks increasingly precarious, rival Sports Direct is preparing to announce a bumper first half update next month.

With both the UEFA 2012 European Football Championship and London 2012 Olympics falling in Sports Direct’s first half, it’s no surprise the retailer is gearing up for a double digit rise in sales growth, rising up to 20 per cent. But the performance remains in stark contrast to JJB’s ongoing struggles, with key investor Dicks Sporting Goods writing off its initial investment in the retailer earlier this week.

“The story on JJB has gone from one of hope given the backing of Dicks to one of huge uncertainty again, and the risk of failure appears to be on the horizon again.” Matthew McEachran, analyst at Singer Capital Markets said on Friday. Speaking of JJB’s survival on the high street amidst strengthening competition and aggressive online discounters, McEachran added:

“Although a much smaller business now, any future demise would obviously be good news for Sports Direct given its ability to catch any capacity withdrawal either through stores or online, or both.”

One of the more crushing blows dealt to JJB Sports in recent times comes from David Whelan, the man who founded the company in 1977. This week, Mr Whelan told the Sun newspaper “I can’t see how they’re going to survive” when discussing the difficulties JJB Sports is facing at present.

Mr Whelan also added: “When I see how badly JJB is doing, and now it looks like Dick’s has withdrawn any help, it just looks like JJB is going to go.

“It would be absolutely upsetting if it does go, but business is business. When you lose money like that, you are going to pay the price.”

Interestingly, Mr Whelan said JJB's problems were the result of “poor management”.

He added: “The last three or four years have been absolutely tough. But when I sold out it was generating profits of £20m.

“It has had something like six chief executives over the past three to four years and it’s probably just mis-management, if I’m being totally honest.”

Analysts are keen to see how Sports Direct’s margin holds up in the wake of such competitive trading. McEachran affirmed that “given the success of London 2012, we suspect there will not be a hit to margin beyond the anticipated dilution from mix”.

As the risk of failure looms on the horizon for JJB, Sports Direct does appear to be onto a winner. The promotional activity the company put into practice during the Olympics guaranteed a boost in business that no retailer can afford to miss out on. This, coupled with Sports Directs’ use of e-commerce and advertising, means that, for now, we can declare the retailer the golden child of UK high streets.

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