The Sports Direct saga took what, for many onlookers, appeared to be an unexpected twist at its annual general meeting in Shirebrook.
Amid what seemed to be growing investor dissent in the weeks preceding the meeting, the retailer’s embattled chairman Keith Hellawell defied critics to edge an overall vote of confidence from independent shareholders.
After losing a similar vote 12 months ago and pledging to quit had history repeated itself this week, Hellawell has done enough, for the time being at least, to placate shareholders and buy himself − and the under-fire retailer – some time.
“While Ashley has shown his ruthlessness through building Sports Direct as he has, it’s arguable that it’s time for him to accept that he can longer do this on his own”
Rebecca Marks, senior analyst, Retail Week Prospect
Yet despite reshaping its executive team, appointing workers’ representative Alex Balacki to the board and unveiling a strategy to become the ‘Selfridges of sport’, questions persist over Sports Direct’s use of zero-hours contracts and working conditions at its Shirebrook warehouse.
So what does the controversial retailer need to do to build a platform from the shareholder vote and return itself to former glories?
For Peel Hunt analyst John Pritchard, the number-one priority for Sports Direct should be to focus on executing its strategy to become a more premium sports retailer.
“Whether the retail business has got momentum or whether it’s going to continue to perform will be what makes or breaks the share price now”
Peel Hunt analyst John Pritchard
“Corporate governance and warehouse issues have made the retailer uninvestable for some, but realistically, could either of those issues get any worse?” he asks.
“Whether the retail business has got momentum or whether it’s going to continue to perform will be what makes or breaks the share price now.”
Retail Week Prospect senior analyst Rebecca Marks agrees.
“While Sports Direct was once a ‘go-to’ destination for sportswear with exclusive brand product, it lost its niche through disputed supplier arrangements, which led the way for its main competitor, JD Sports, to win them over instead,” she says.
The retailer released a trading statement that was devoid of figures on the day of its AGM, but insisted that its new-generation flagship stores “continue to exceed our expectations”.
“Drafting in canny retail operators to bolster the board and open lines of communication would no doubt ease shareholder anxiety but, in reality, Ashley is likely to be running the show for a long time to come”
Pritchard believes the refurbishment programme is much more about getting suppliers and shareholders back on side than it is about wowing customers.
“In the short term, the new flagships are not going to make much difference to your average Sports Direct shoppers,” he suggests.
“They won’t change perception overnight – there are only a dozen or so of them – but they have to do this to get manufacturers on side, which may encourage them to return to providing higher-quality product and in turn generate the profit growth that will create value for shareholders.”
But is Ashley the best person to deliver these results for the business, or should he further bolster a boardroom that, even with the appointment of Jon Kempster, looks threadbare at best?
“While Ashley has shown his ruthlessness through building Sports Direct as he has, it’s arguable that it’s time for him to accept that he can longer do this on his own,” Marks argues.
“Whether Ashley drives the business to become the ‘Selfridges of sport’ or just accepts that it’s very much viewed as a discounted, low-cost retailer, what Sports Direct needs to win shareholder confidence back is some solidity.
“But regardless of any new hires at the top, it is questionable whether Ashley’s lack of openness and acceptance to change will ever secure confidence if its performance continues to descend.”
Mike Ashley and Sports Direct
Drafting in canny retail operators to bolster the board and open lines of communication would no doubt ease shareholder anxiety but, in reality, Ashley is likely to be running the show for a long time to come.
The Newcastle United owner has certainly gained his fair share of attention over the past year – be it for his investments in businesses ranging from Game to Agent Provocateur, or his self-professed binge-drinking sessions.
However, Pritchard believes despite the controversy he attracts, the tycoon is the man to return the business he founded to the top of the sports retailing tree.
“Mike is absolutely the man to run Sports Direct – Dave Forsey was very good and he fell on his sword last year, but Mike ‘is’ Sports Direct ultimately,” he says.
“He’s built it from scratch. Anybody else coming in and trying to understand it would have a tough job.
“As a company, Sports Direct has had a lot of ups and downs, it has undoubtedly had a strategically poor period, but I wouldn’t bet against him to turn the performance around.”
Be that as it may, the retailer continues to be dogged by allegations around its working conditions – Unite picketed its AGM and insisted Sports Direct failed to fulfil pledges it made around improving working conditions last year.
“Despite all the bad press and Ashley’s call before Parliament, Sports Direct’s core target market is arguably more concerned with price than ethics”
Rebecca Marks, senior analyst, Retail Week Prospect
On this front, the retailer seems to have returned to its former unapologetic stance. Although Hellawell said he would meet with Unite, he stressed that the business would continue to offer zero-hours contracts.
Given that he was re-elected by independent shareholders later the same day, it’s arguable that this issue is not a priority for some stakeholders, either.
“Despite all the bad press and Ashley’s call before Parliament, Sports Direct’s core target market is arguably more concerned with price than ethics – and the former is something which Ashley ensures the business keeps delivering on,” Marks concludes.
The retailer certainly has a long to-do list if it is to build on Hellawell’s vote of confidence, but keeping suppliers sweet and driving its store refurbishment plan can help it score with both investors and shoppers once more.