The rivalry between JD Sports and Frasers Group – formerly Sports Direct – is one of the longest-running in UK retail. Now with fresh blood at the helm of both empires and expansion plans on the horizon, which is best placed to take the lead?

  • JD Sports has pulled ahead of Frasers Group financially in recent years, but is this growth sustainable?
  • When it comes to acquisition, JD is focused on international while Frasers is targeting new verticals and customer demographics 
  • Both retailers are entering a new leadership era, with JD’s new CEO a more leftfield choice

Sportswear retailers JD Sports and Sports Direct have been fierce rivals for years, trading blows in the battle to secure both consumer spend and key product lines from powerhouse brands such as Nike and Adidas.

In recent years, this competition has spilt overseas and into new categories as both businesses went on the offensive with acquisition plans to fuel international growth and domestic expansion.

That bitter rivalry has now reached a potentially pivotal moment. Both retailers are entering a new leadership era. Frasers Group founder Mike Ashley handed the reins to son-in-law and former head of elevation Michael Murray in May, while longstanding JD Sports boss Peter Cowgill was ousted that same month.

Cowgill has since been replaced by chair Andy Higginson and incoming chief executive Régis Schultz.

How will this change in leadership and the retailers’ ever-evolving strategies and ambitions impact their progression? And which business will pack the biggest punch in five years’ time? 

Retail Week analyses the sports giants’ financial performance, acquisitions, international performance, culture and strategy – and, ultimately, who comes out on top.

Financials

It doesn’t take more than a cursory glance at JD and Frasers’ financial performance over the last five years to establish a clear leader both in terms of profitability and sales growth.

JD’s pre-tax profit came in at nearly double that of Frasers when comparing the duo’s latest financial years and has consistently been substantially ahead since 2017.

 

From a sales perspective, too, JD has pulled ahead of Frasers. Turnover in the year to January 29, 2022, rose 38% year on year to £8.6bn in comparison with Frasers’ £4.7bn in the 12 months to April 24, 2022.

However, JD has only established this lead in recent years and lagged behind Frasers’ turnover as recently as 2017. 

 

This stratospheric growth in sales at JD has been driven in large part by the retailer’s multichannel expertise, including a focus on ecommerce and its smartphone app.

Online sales growth during the coronavirus pandemic, for example, was more than double that of Frasers, having been at a similar level as its rival in 2017.

 

In terms of current financials, there is no denying that JD has the upper hand. However, one City analyst argues that the shift in Frasers’ strategy since 2017 leaves it well-placed to regain ground lost to JD in the coming years.

“JD’s strategy is broadly unchanged and has been for several years, whereas if you look at where Sports Direct was and where Frasers Group now is, there is quite a marked difference in scale, ambition and, to a lesser extent, strategy,” he says.

“The restructuring of the last two or three years, the acquisition of House of Fraser itself and the elevation strategy will change – transform even – the profitability and opportunities for profitable growth the business has in years to come.”

Analysts are divided on which retail group is best placed to maintain momentum during the cost-of-living crisis. 

The City analyst suggests Frasers’ “broader mix of products from a more specialist focus to more sports fashion and a broader mix of prices that cover a wider range of customer needs” mean it will prove more resilient than JD as cash-strapped shoppers trade down. 

“You cannot maintain those [Sports Direct] price points and make a profit from them based on current inflation”

Eleonora Dani, Shore Capital

But Shore Capital analyst Eleonora Dani argues that Frasers’ array of entry-level own brands sold in its core Sports Direct business could limit its ability to pass on price increases to customers.

“Even though demand is there for value product, those who sell it cannot pass through cost inflation while maintaining that value proposition, which means they won’t be making as much money as before,” she says.

“That is an issue for Sports Direct and their value own-brand offers – you cannot maintain those price points and make a profit from them based on current inflation.”

 

JD Sports’ gross margin has been ahead of Frasers Group’s since 2017, but it has also been broadly flat during that period.

JD Sports store exterior

JD Sports had “a record year in 2022”

By contrast, Frasers’ gross margin has risen fairly consistently in that time, which has coincided with the retail group’s acquisition of chains such as House of Fraser, as well as the physical roll-out of its luxury division of Flannels stores.

It could follow, therefore, that Frasers Group will be able to cushion the blow of thinner margins across its own-brand lines in Sports Direct by relying on the higher price points in other divisions across its stable, continuing to close the gap on margins with its rival by doing so.

Dani also warns that JD may be “a victim of its own success” in the coming years as investors ponder how long the growth it has delivered since 2017 can be sustained.

Although she hails its “very efficient and resilient” business model, she cautions: “If you look at JD Sports, they had a record year in 2022 and, for investors, it raised questions around how long they can continue to grow at the rate they have, particularly considering coming out of a pandemic where they were a Covid winner.  

“In contrast, investors can look at Frasers and say they like the exposure to the premium segment with Flannels and the fast fashion piece they are expanding into.

“It does offer a little more protection and mean they can pull levers in areas of the market that are going well when others are going less well.”

Acquisitions

Although Frasers’ flurry of deals has been more highly publicised than those of its rival, both it and JD have embarked on acquisition sprees during the past five years. But their approaches to M&A differ markedly. 

JD Sports’ acquisitions have been broadly focused on deepening its reach into the sports fashion sector overseas, demonstrated by its takeovers of Finish Line and DTLR in the US and Hot-T in South Korea.

Frasers, by contrast, has sought to broaden its reach in new verticals and customer demographics, snapping up the likes of Evans Cycles, Sofa.com, House of Fraser and, more recently, collapsed value etailer Studio and struggling fast fashion players Missguided and I Saw It First.

Earlier this month, it made an offer for another online business – Australian flash sales site MySale

JD Sports and Frasers Group acquisitions since 2018

JD-Sports-acquisitions-2018-22

Sports-Direct-acquisitions-2018-22

While some acquisitions, including its 2017 takeover of luxury retailer Flannels, have keyed into the group’s “elevation” strategy and opened up lucrative new revenue streams, Dani is unconvinced by Frasers’ acquisition strategy. 

“Mike Ashley is notoriously a gambler, which isn’t bad, but the approach his group has adopted to acquisitions does seem to be: ‘Let’s buy 10 things and if one really pays off then who cares about the other nine?’ 

“That seems to be the logic around MySale and fast fashion businesses like I Saw It First and Missguided. When it comes to these businesses, I’m not sure if these acquisitions really make sense for the group or if they were just up for grabs.”

The City analyst, however, takes a contrasting view. “If you look at what they have executed on, the better acquisition strategy has to be Frasers,” he argues. 

“JD Sports has been dragged through it by the CMA for Footasylum, and the other acquisitions it has made have not opened up new avenues of growth or revenue”

City analyst

“The acquisition of HoF has led to a whole rebrand – that business now is probably a quarter of the size that it was when they bought it, but it has gone from loss-making to delivering tens of millions of pounds of cash profit. 

“Whether it’s Game or what they do with Studio – which is buying the credit offer and personalisation skills – they have made acquisitions that are working and expanding what they can do, while the core of the business is ticking on successfully. 

“JD Sports has been dragged through it by the CMA for Footasylum, and the other acquisitions it has made have not opened up new avenues of growth or revenue. It has just doubled down on the existing strategy.”

International expansion

The two rivals have taken differing approaches to international growth. 

JD has expanded more substantially than Frasers outside the UK in recent years, acquiring or opening 1,520 stores overseas between 2017 and 2021, compared with Frasers’ 233.

As part of that international growth plan, JD has doubled down on its presence in the lucrative US market, opening JD fascias and acquiring existing businesses such as Finish Line.

 

While Frasers has scaled back its international ambitions over the last few years, JD has been turbocharged, driven by maintaining and deepening its close ties with powerhouse brands Nike and Adidas across the pond.

 

However, as both sportswear giants accelerate their DTC strategies and scale back their supply deals with even the most longstanding of retail partners such as Foot Locker, JD must be mindful of the risk posed by losing access to Nike and Adidas’ best products – and the impact that would have on sales and its USP as the self-styled ‘undisputed king of trainers’.

Frasers has made strengthening its relationships with premium sports brands a key priority under Murray and this is already bearing fruit. The likes of Liverpool and England footballers Jordan Henderson and Trent Alexander-Arnold were made available by Nike for Frasers campaigns ahead of the delayed European Championships in 2021.  

“JD Sports should view the appointment of Ger Wright as Frasers Group’s managing director of sports as a direct threat. Having worked at Nike, Wright will be set on delivering an enhanced store proposition”

Beth Bloomfield, Retail Week Prospect

Retail Week Prospect senior retail analyst Beth Bloomfield says: “Murray’s involvement has been front and centre of Frasers’ drive to build better relationships with major brands including Nike, Adidas and Under Armour, convincing them to provide the business with better products in its elevated stores. 

“JD Sports should also view the appointment of Ger Wright as Frasers Group’s managing director of sports as a direct threat. Having worked at Nike for a number of years, Wright will be set on delivering an enhanced store proposition.  

“Frasers ‘elevation’ strategy may give it the upper hand to deliver future partnerships over JD within the UK. However, as JD has grown its international presence faster than Frasers, it may have better clout Stateside, which in the long-term could be more advantageous.”

Investec analyst and JD Sports house broker Kate Calvert argues that its international momentum will stand JD Sports in good stead to maintain its sales and profitability lead over Frasers Group in years to come.

“JD Sports is a diversified global omnichannel business and Frasers is predominantly a UK business,” she says.

“JD has already built a scaled profitable platform outside its core UK business in the US, Europe and Australia with multiple growth opportunities to go after via format development with the growth of apparel – organic and acquisition growth.” 

By contrast, Frasers has scaled back its US ambitions in recent years. It sold Bob’s Stores and Eastern Mountain Sports in May. Instead, the retail group is focused on Europe to power its international expansion drive. 

 

In its latest update to the City in July, Frasers said it had “extensive ambitions to grow the business outside of the UK”, which it would drive “through acquisitions, joint ventures and organic openings”.

The group is also opening a 2.4 million sq ft warehouse and distribution centre in Germany next year, which will have the capacity to handle 300 million products every year.  

Bloomfield, however, is uncertain whether such investment will be enough for Frasers to surpass JD’s momentum overseas.

“Frasers is unlikely to catch up without a serious acquisition strategy,” she says.

“International expansion at this point also comes with heightened risks, with external factors such as the war in Ukraine, the cost-of-living crisis and inflation, as well as continued supply chain problems.”

Both retailers have set out their stall in terms of international expansion, targeting different markets and doing so with different intentions.

While JD Sports is comfortably ahead at the moment, its reliance on keeping powerhouse brands on side to maintain its USP combined with Frasers Group’s more varied expansion approach and acquisition ambitions could see that lead shrink in the coming years. 

Where next?  

Both JD and Frasers have new leadership taking over from longstanding CEOs, but while Frasers’ succession plan represented a smooth and transitional transfer of the baton, JD’s was much more abrupt.

Cowgill was unceremoniously ousted by the board amid a series of controversies and governance concerns – including a clandestine car-park meeting with Footasylum boss Barry Bown – before former Kingfisher executive Schultz was appointed to replace him. 

Exterior of Sports Direct Manchester store

Frasers has strengthened relationships with premium sports brands

Both successions raise questions for analysts. Shore Capital’s Dani suggests that Murray taking the reins from his father-in-law at Frasers “doesn’t scream meritocracy” and flags that the group’s young executive team “are a little unproven” for a PLC of its scale.

JD’s appointment of Schultz, meanwhile, came out of leftfield and there are doubts as to whether the Frenchman has the apparel expertise that may be required to meet City expectations on sales and profits. 

“While the arrival of Schultz at JD Sports signals its intent to continue its international expansion, he is fairly unseasoned in the US market and this could prove problematic,” Bloomfield says.

“However, the appointment of Andy Higginson, an experienced UK retailer, and its new leadership structure may well give it the edge to succeed.”

Murray has already set out his plans to drive Frasers’ growth through the continuation of its elevation strategy in the UK and the diversification of its offering, both through acquisitions and international expansion.

Similarly, incoming JD boss Schultz is unlikely to veer substantially from the track laid by his predecessor given the sustained growth it has delivered over the last five years.

On that basis, which business is most likely to gain or maintain its edge over the other in five years’ time? 

 

Retail Week Prospect forecasts that JD will continue to leave Frasers in the shade in revenue terms in the next five years, with a forecast gap of approximately £4bn between the two businesses by 2026 – similar to the distance between them today.

But the City analyst believes there is “every prospect Frasers will close that gap on JD Sports, given its broader reach across different sectors and its consistency of execution and delivery”.

Dani takes a different view. “JD Sports is the safer bet, but if you want to make a speculation you could go with Frasers as a wild card,” she says.

“If you are rational it is JD Sports, but if you are a gambler who wants to lose everything or double their money, it is Frasers.”

JD has proven itself time and again in recent years with a consistent flurry of profit upgrades and sales uplifts that put Frasers’ history of mixed – and at times delayed – financial results in an unflattering light.

But having reached such heights, it may find it difficult to maintain such a strong lead and momentum in the medium term – particularly at a time when Frasers appears to be building the latter. 

And while Frasers has form in embedding and growing new acquisitions in new sectors, JD does not. It took years for the business to make a success of its outdoors division following the purchases of Go Outdoors, Blacks and Millets, for example.

Combined with JD’s reliance on powerhouse brands like Nike, this raises questions about where the business can go next if it does need to pivot away from its core sports fashion market.

While Frasers is mounting a fightback, it appears unlikely to overtake JD in the medium term. Murray, Ashley and co are, however, fitter for an uncertain future than they have perhaps ever been and ready to give JD a run for their money.

  • Get the latest fashion news and analysis straight to your inbox – sign up for our weekly newsletter