JD Sports’ outdoor division is yet to turn a profit. What could the retailer learn from specialists Go Outdoors and Mountain Warehouse?
Mountain Warehouse has reported soaring pre-tax profits and like-for-likes sales.
The specialist outdoor products retailer has racked up four consecutive years of record-breaking increases in sales and earnings and its latest full-year results follow Go Outdoors reporting a 36% rise in profits for its full year last October.
By contrast, the one black mark on JD Sports’ stellar full-year figures last month came from its outdoor arm, which reported an operating loss of £4.1m.
JD’s outdoor division comprises Blacks, Millets and Ultimate Outdoors – the latter a fascia that the retailer has been developing since 2014.
Speaking about JD Sports’ outdoor offer following its recent full-year results, Panmure analyst Peter Smedley said: “We believe this business faces, possibly insurmountable, challenging issues to return to meaningful profitability, including oversupply, aggressive vertically integrated competitors, brands’ relatively weak product and distribution segmentation by retailer, weak price robustness, less demand- and style-driven consumer purchasing patterns, and overdependence on favourable weather conditions.”
As Mountain Warehouse and Go Outdoors forge ahead in sales and profits, what lessons can JD Sports learn to turn around its outdoor division?
One significant shift that has driven sales of outdoor and leisure goods has come from the changing attitudes of consumers. Shoppers increasingly seem to be spending on items and experiences that will last and are turning to specialist retailers to provide high quality merchandise.
Verdict analyst Rebecca Marks says: “Consumers are willing to spend on items that have longevity and are turning away from fashion brands to speciality retailers as a consequence.
“They are willing to spend on longer-term purchases, which have a guarantee of durability.”
Mountain Warehouse has tapped into this trend by investing in a product range that puts substance over style as its own-brand offer allows the retailer to invest in high-quality products to rival big brands at significantly lower prices.
Chief executive Mark Neale told Retail Week: “Much of our product is functional. Our customers are not making a fashion purchase.
“Instead it is quite often products they need and which link in with the experiential side of things.”
Mountain Warehouse also emphasises its outdoor expertise through its website. As part of the growing trend to provide editorial content alongside retailers’ transactional website, the speciality retailer has a variety of blogs with tips for runners and ramblers for instance.
“Offering instructional content online increases Mountain Warehouse credentials in its sector and creates a sense of trust for consumers,” says Marks.
More in store
Off the back of their success in recent years, both Mountain Warehouse and Go Outdoors have also invested in expanding their respective store estates.
Go Outdoors operates 57 stores in the UK with an average size of 35,000 sq ft. The retailer is also increasingly investing in big-box branches including its Milton Keynes flagship and a 56,000 sq ft store in Manchester.
By investing in larger store estates and its click-and-collect offer, the retailer has positioned itself as a one-stop shop for outdoor enthusiasts.
”Go Outdoors stores are much larger premises so it can create a better shopping experience and allow shoppers to get everything under one roof, which puts them ahead of smaller retail square-footers like Blacks and Millets,” says Marks.
JD Sports is investing in its outdoors business and has about 180 store across its three fascias, including five Ultimate Outdoors stores that will be converted from former Kiddicare stores. However, the retailer’s smaller store estate combined with a leaner stock offering means that Blacks and Millets do not have the same one-stop shop credentials for outdoor enthusiasts shopping at Go Outdoors and Mountain Warehouse.
A source close to JD Sports said the retailer’s branded items meant its offer was more focused on menswear and “a less diverse and family-focused” offer than Mountain Warehouse.
JD Sports has made significant in-roads at its outdoor division since acquiring Millets and buying Blacks out of administration in 2012, but there is still work to do to for the retailer to forge ahead to profitability.
As Mountain Warehouse eyes a £200m flotation this year and Go Outdoors explores a potential sale to fuel further expansion, JD Sports needs to forge ahead to ensure its outdoor offer can weather the elements.