The outdoor goods market has had its fair share of troubles since the recession, but Mountain Warehouse has consistently bucked the trend to prove the category can be profitable.
What is the secret of Mountain Warehouse’s success, and can it be replicated?
Mountain Warehouse revealed record profits on Friday and has had 20 consecutive years of growth. Its continued success is all the more remarkable given the trials and tribulations of other big-name outdoor retail brands.
“For the year ended in January, Go Outdoors had revenues of £202.2m, and JD’s Blacks, Millets, Ultimate Outdoors and Tiso businesses had combined revenues in excess of £155m. Mountain Warehouse’s sales climbed by 30.8% to £184.8m”
Blacks almost disappeared from the high street in 2012 but, following an insolvency process, was saved by JD Sports.
After a radical overhaul of the business, JD was able to reveal last month that its outdoor division – which also includes Millets and, since CMA approval this month, Go Outdoors – had made its first profit.
The length of time it took JD to do so is indicative that cracking the outdoors market can be as tough a challenge as the Three Peaks.
The acquisition of Go Outdoors will double the revenues of JD’s outdoor businesses and help it leapfrog Mountain Warehouse’s sales.
In comparison, Mountain Warehouse’s sales climbed by 30.8% to £184.8m during the year to end of February.
Lee Bagnall, chief executive of outdoor at JD Sports, has attributed the turnaround of the division to building a common purpose for the business, and a reduction of the store estate from 400 to 170.
Having at last turned a profit helped by such measures, and bolstered by newly acquired Go Outdoors, JD’s outdoor division looks better placed to succeed in its specialist market.
Shore Capital analyst George Mensah believes the addition of the Go Outdoors business and its out-of-town stores will give JD a way of effectively showcasing a differentiated product set.
“It has become less of a specialist proposition and more of a generalist proposition, and as a business you need to cater to that shift in dynamic as well”
Shore Capital analyst George Mensah
“It has become less of a specialist proposition and more of a generalist proposition, and as a business you need to cater to that shift in dynamic as well,” says Mensah.
Bagnall told the RBTE 2017 conference earlier this month that trade has been especially challenging because “if you go back five years, other household brands did not play as big a part in outdoor”.
“Now everyone is taking part,” says Bagnall. “So you will see Mr Porter there and some of this product is bloody good; the Uniqlo down jacket product is incredible product and a great price.”
Investec analyst Kate Calvert says Mountain Warehouse has been so successful because it has a unique place in the market because of its own-label development and it has “cornered the value end” of the casual recreational ‘dog-walking market’, as opposed to all-weather mountaineering enthusiasts.
Mountain Warehouse’s focus on the more recreational end of the market has allowed the retailer to home in on locations in secondary UK town centres, while much of the retailer’s rapid expansion came in the wake of the recession, meaning it has been able to secure property for a good price.
Meanwhile, its value own-brand focus has allowed it to avoid being hit by the discounting that has harmed rivals that have attempted to operate at higher prices, according to Calvert.
She adds that recently, pricing has returned to more rational levels because of less stock flooding the market, which was exacerbated by a few tough winters when the weather was bad.
Bagnall notes that conditions have also been tough because the outdoor market as a whole has not increased in size despite becoming ever more competitive as generalists have entered.
“Mountain Warehouse is a retailer for people who have a pair of muddy walking boots at their back door and Zakti is a retailer for people who have a pair of trainers at their front door”
Mountain Warehouse chief executive Mark Neale
Mountain Warehouse has also made the canny move of expanding into the fast-growing athleisure market through its Zakti fascia and plans to open at least two more of the stores this year.
“Mountain Warehouse is a retailer for people who have a pair of muddy walking boots at their back door and Zakti is a retailer for people who have a pair of trainers at their front door,” says Mountain Warehouse chief executive Mark Neale.
“We’re selling performance clothing with technical features at great value for both sets of customers.”
JD vs Mountain Warehouse
The acquisition of Go Outdoors means JD Sports now has around a quarter of the outdoor market and it will be able to be much more competitive with Mountain Warehouse on price, and squeeze the indie outdoor retailers further.
“There’s been a lot of consolidation over the past five or ten years, but there is still a large tail of independents,” says Mensah. “The growth of Go Outdoors would be difficult for them [indies] because they are quite competitive on price.”
Mensah believes JD is now well positioned to continue its momentum in outdoor goods.
The dark days for Blacks will soon be a distant memory if JD succeeds in scaling ever greater heights.