If its second CVA is successful, that is just the start of the fight to give JJB a sustainable future. Gemma Goldfingle looks at the challenges facing new chairman Mike McTighe
JJB Sportslooks like it stands a good chance of pulling off what many thought impossible - survival - thanks to likely approval of its second CVA within two years and a third fundraising.
But the financial re-engineering, essential as it is, will only be the start of its fight for a future.
While the retailer may benefit from the 43 store closures planned once a CVA is approved, a long-term successful business still needs to be built. And after a £68.6m pre-tax loss in its last financial year, it is not going to be easy.
But that is the objective of JJB chairman Mike McTighe and his team, and today he tells Retail Week to expect a “whole suite of changes” as he attempts to stop the rot. Meanwhile, potential bidder JD Sports is watching developments closely.
Once the UK’s premier sportswear retailer, JJB has been on the slide for nearly a decade. Pre-tax profits peaked at £110m in 2002 and a big contributor to its downfall has been its slowness in addressing competition - especially from Mike Ashley’s Sports Direct - says Retail Week Knowledge Bank director Robert Clark.
He says: “10 years ago it had the market to itself. It just never saw Sports Direct coming. It didn’t try to compete until it was too late.
“It had scope to be more price competitive but thought it was above it - it thought Sports Direct downmarket. It could and should have done more.”
As time passed and Sports Direct’s ‘pile it high, sell it cheap’ approach proved successful, JJB finally realised its customers were being hoovered up and tried to emulate its fast-growing rival. But it quickly became apparent that there was never going to be a happy ending to any attempt to compete on price with Sports Direct.
MIKE McTIGHE CV
- JJB – chief executive
- Volex Group – chairman
- WYG – chairman
- Pace – chairman
- Ofcom – board member
- Betfair Group – non-executive director
- Lloyds Banking Group – business support unit adviser
- Carrier1 International – chairman and chief executive
- Cable and Wireless – chief executive, global operations
- Philips Netherlands
McTighe, who took up his role in late December last year, says JJB should never have tried to enter the realm of price-led competition and - assuming the CVA and other emergency measures are successful - the focus will be on differentiating JJB from the competition.
He says: “In the past we tried to compete with Sports Direct as a discounter. We’re not going to do that anymore. We’re not a junior version of Sports Direct. There’s a gap in the market between discounter and fashion sports that we can fill.”
Despite sports participation being seen as JJB’s big differentiator, one of McTighe’s first decisions was that JJB would ditch its ‘Serious about Sport’ tagline, which he thinks is intimidating to consumers.
He says: “We provide a holistic offer catering for everyone - athletes and spectators too. We need to make that clear. I don’t think [our strategy] is different in terms of its aspirations [of being a serious sports retailer], it’s about delivery.”
Clark agrees that it is right to lose the tagline. “It wasn’t appropriate - the cynical consumer doesn’t buy that it’s a serious sportswear store,” he says.
“It is right to widen its appeal but it should underpin this with a credible specialist element.”
Peel Hunt analyst John Stevenson says that in reality, JJB never was ‘Serious about Sport’ but the tagline nevertheless gave it credibility and vital distinction from Sports Direct, even if JJB did not fully live up to its claim.
And retention of that distinction - in practice, if not in the marketing slogan - is critical not only for the retailer’s differentiation, but to woo customers and for JJB’s key suppliers such as Nike and Adidas, which have remained supportive of the retailer and want a mid-market specialist to sell their products.
McTighe says: “We’re supported by our key suppliers, who see a clear gap between what Sports Direct and JD Sports offer.”
Stevenson believes that despite the renewed, albeit re-weighted, focus on sport, JJB may have difficulty moving away from its promotions culture.
He says: “The reality is that last autumn/winter, discounting is what got people into store. Customers are more driven by promotions at the moment.”
But McTighe will also devote attention to stock, store layout and training. He says that stock will not be radically different but the offer will be more highly tailored for each shop.
Clark believes JJB’s product offering has lacked variety and not been particularly exciting in recent times.
“It has been over-dependent on the youth replica shirt market,” he says. “It should be stocking more specialist products and be making more of its equipment offer.”
It is understood that JJB will also push for more exclusive ranges from its key suppliers.
“That’s exactly what it should be doing,” says Stevenson. “People should be going there because of the bespoke product, not for discounting or because product is rammed in there.”
JJB will prioritise getting its store layout right. According to Stevenson, the retailer has failed on the basic “retail detail” of effective adjacencies.
That is one of the objectives of JJB’s store upgrade programme that McTighe says he intends to roll-out. So far, sales at its six modernised stores are up 11% on the company average.
Stevenson, who has visited the revamped Slough store, was impressed with the new format.
He says: “It’s not perfect but it’s good - a vast improvement. They have improved product adjacencies and there’s clear in-store signage. It’s a nicer shopping experience. It’s not as off-putting as it once was.”
The revamped store also reversed the in-store location of key lines, putting football shirts and equipment - the biggest footfall drivers - on the mezzanine level and more specialist cycling and golf equipment on ground level in order to win spend in such categories.
However, Stevenson does raise questions about whether the uplift in sales would be diluted as the roll-out continues. Clark thinks JJB should go further than simply improving store layout and instead aim to create destination stores.
He says: “It needs to create an in-store theatre. The store environment is the worst part of Sport Direct, and [JJB] needs to differentiate itself from Sports Direct.
“There should be demonstrations and local sports stars in-store. If it’s reduced to 150 stores, it needs to make its predominantly out-of-town stores destinations to give it equivalent scale.”
Another focus for JJB is staff training, which McTighe plans to invest in.
Stevenson applauds this and sees it as essential if JJB is to be viewed as a credible specialist sports retailer.
“Pricing and product are just one side of the story. When buying specialist products like sports equipment customers want to speak to people with good product knowledge.
“That was one of Ben Gordon’s focuses when he started at Mothercare. He saw it had suffered in its marketplace because of a perceived lack of specialist knowledge.”
Stevenson believes JJB could change people’s perception as the maternity specialist did, and with a team of
product-savvy staff, coupled with bespoke products, that it could fill the gap left by the decline of independent sports shops.
One area in which JJB lags behind its rivals Sports Direct and JD Sports is in developing credible own-brands, which help boost low margins.
Richard Bernstein, director of JJB’s second largest shareholder Crystal Amber, would like to see JJB develop own brands.
“It’s a brand oriented market,” says Clark. “At the moment JJB is reliant upon Nike and Adidas. Having its own credible brands not only boosts margins but gives the opportunity to branch into new categories and expand ranges.”
Catching up online
McTighe is also expected to ramp up JJB’s online offering. JJB was once an online market leader, according to Clark, but its website has suffered from under-investment in comparison with Sports Direct, which has actively promoted its online offer by rebranding most of its shops SportsDirect.com.
The ever-present threat of Sports Direct looks likely to impact JJB’s turnaround. At the time of its last update - when it reported gross profit soaring 8.4% to £167m in the 13 weeks to January 23 - Sports Direct vowed to plough more funds into marketing, piling the pressure on JJB.
Clark says: “Sports Direct has been key to where JJB is today. It’s known for its guerrilla marketing - Ashley could decide to kill [JJB] off for good.”
Another weight around JJB’s neck is its high central cost base, according to Stevenson.
He says: “It really needs to cut back on central overheads. Its costs are based on a much bigger business. Ideally it would move out of its head office and warehouse but it probably isn’t feasible. There can’t be much demand for commercial property of that size in Wigan.”
Time and money will be key to the turnaround, which McTighe says will take three to five years. JJB is currently in discussions with its so-far supportive shareholders about its next wave of fundraising.
The retailer has so far declined to put an exact figure on what is needed in the next phase of fundraising but has said it will range between £31.5m and £110m. Clark says to roll-out the store upgrade will cost upwards of £50m.
He says: “It’s not a foregone conclusion that it can survive. But with its so far amazingly supportive shareholders it at least stands a fighting chance.”
WHAT IS THE JJB OF THE FUTURE?
More exclusive products JJB will aim for exclusive product deals with key suppliers such as Nike and Adidas. It had an exclusive deal with Nike last year to sell cyclist Lance Armstrong’s Livestrong clothing range
Staff with specialised product knowledge JJB will invest in training. It wants to be the place to go for technical knowledge about specialist products
Less focus on discounting The retailer will stop trying to compete with Sports Direct on price, instead using bespoke specialist product as its point of differentiation
Bespoke product from store to store The retailer will roll out a grading system across its portfolio to tailor product for individual stores
More effective merchandising JJB will focus on cross-selling by better product adjacencies
Ditching the ‘Serious About Sport’ tagline The tag is misleading and intimidating to customers. A new tagline has yet to be decided