German super-brand Adidas has pulled Chelsea replica kit from Sports Direct, revealing a struggle for power in the sportswear market.

Mike Ashley has been no stranger to conflict in his long retail career, but this time he is going into battle with a very powerful foe.

The Sports Direct tycoon has pitted himself against Adidas – the second-biggest sportswear brand in the world, with a market value of £15bn – in what some might view as a risky move in the brand-obsessed sportswear market. 

‘Strip Wars’ kicked off last week when Ashley brought it to the world’s attention that Chelsea FC’s shirt manufacturer, Adidas, planned to withdraw the football team’s replica kit from Sports Direct stores.

Sports Direct chief executive Dave Forsey believes the decision was “impossible to understand”.  

“We’re very well known for football. Chelsea supporters will be surprised to find they can’t find Chelsea kit at Sports Direct,” he says.

Adidas is also restricting the type of replica boot the retailer can stock, with only a plain black version available – the snazzy coloured alternative is being saved for other retail outlets, including Adidas’ own stores.

In explaining why it has made the decision, an Adidas spokesman said the brand’s distribution channels are determined based on criteria such as “in-store environment and customer service levels”.

He said: “This season, we’re implementing a new distribution strategy across Europe for key products in football and other sports. 

“We’d like to point out that Sports Direct continues to be an important retailer for Adidas and their customers still have the opportunity to buy a great range of Adidas products in their stores.”

Mike Ashley is not taking the decision lying down and is reportedly vying to snap up a 5% stake in Adidas to put pressure on the brand as a shareholder. 

Shareholder strategy

If he presses ahead it will not be the first time Ashley has been a hostile shareholder. He was a disruptive minority shareholder of outdoor retail group Blacks Leisure, where he threatened to sack the board in 2007 and eventually ousted chairman David Bernstein, now chairman of the Football Association, in 2011.

Fans of Newcastle United know Ashley is not a man to be trifled with. His ownership of the football club has proved deeply unpopular on Tyneside and has stimulated protest marches from the team’s supporters.

Mike Ashley is no stranger to retail spats

Mike Ashley is no stranger to retail spats

But the sportswear billionaire made no conciliatory moves and angered fans further by renaming the club’s iconic stadium the Sports Direct Arena and selling sponsorship to payday loans firm Wonga. 

There has long been some tension between Sports Direct and Adidas. Ashley dumped Adidas, which had been the long-term Newcastle United shirt supplier, in favour of arch-rival Puma in 2010. Meanwhile, Adidas backed former Sports Direct rival JJB Sports and just months before its collapse agreed to provide security for a loan to fund its much-needed store revamp programme.

“People in the industry recognise Sports Direct as a ‘Nike company’ rather than an ‘Adidas company’,” says one source close to Sports Direct. 

“I think it’s a reflection of the way Sports Direct operates. Adidas has always had difficulty with that and with UK retail as a whole.

“The fact that Adidas has its own shops makes it more of a struggle. It’s looking for a stable pricing platform, while Mike Ashley starts discounting after the first seven weeks of holding a product.”

Is the price right?

Sports Direct sells a growing array of sportswear product – its 400 stores make it difficult to ignore – but its emphasis on price does not always make it a natural home for those serious about sport.

Brands such as Adidas spend millions cultivating their brand image, sponsoring athletes from David Beckham to Andy Murray, and they do not want premium apparel surrounded by 70%-off signs. One sportswear retailer says brands have started segmenting their products: “Ten years ago everybody could get everything. This is a new classification they’ve created – therefore you can have this and not that product.

“Brands want to segment the market. They roughly divide the classifications into fashion, sports performance and value. Sports Direct fits into the value end.”

Adidas highlighted “in-store environment and customer service levels” as among its criteria for determining where its product is stocked. Both are areas in which Sports Direct is trying to improve. 

Through its £112m employee bonus scheme it is attempting to improve service, ensuring its workforce are committed to driving sales. The sizeable payout should stop the churn of staff in its shops. It is also striving to improve the store environment and is trying to move away from the ‘pile ’em high, sell ’em cheap’ mentality. 

Specialist departments are being installed in stores and Forsey says the retailer has moved away from constant Sales to focus on bigger seasonal events.

Improving store standards

However, the retailer has a long road ahead to revolutionise the environments of some of its stores.

Cantor Fitzgerald analyst Freddie George says the retailer’s cut-price fashion offer detracts from its sportswear prowess. “It is trying to move more upmarket in sports stuff. It might have to think about splitting the sportswear [from the fashion offer]and have two different fascias. The customer profile between the two is very different,” he says.

Now that JJB has finally bitten the dust, Sports Direct has the UK sportswear retail market largely to itself. This means brands such as Adidas are dealing with a ‘value retailer’ as the biggest player in the mass market, which is why they have started to take matters into their own hands.

Nike has revealed plans to double its UK store estate to 60 over the next few years and Adidas, which has just seven mainline stores in the UK, plans to open in cities across the country.

Adidas group retail director Rupert Campbell told Retail Week before the sportswear brand’s Trinity Leeds flagship launch in August that it wants to extend its share of the premium market and believes having its own stores is the best way to do that. “We can present our brand the right way,” he said.

Adidas-owned Reebok, which had a big presence in JJB Sports stores, has also returned to retail. It opened its first store in Covent Garden in September and has already opened six more across the Southeast.

Adidas, which has just seven mainline stores in the UK, plans to open in cities across the country.

Adidas, which has just seven mainline stores in the UK, plans to open in cities across the country.

New contenders

It is not just brands that have identified a gap in the market – retailers have also got in on the act. JD Sports launched performance sportswear retailer JD Pro late last year, and Matalan opened a flagship store for its new Sporting Pro fascia in Kensington, London, last week.

The sportswear market could soon become more crowded with more options for brands such as Adidas to showcase and sell their wares. 

However, Sports Direct at present holds about 40% of the market, meaning that restricting products such as the Chelsea kit could be just as risky for Adidas as it is for Mike Ashley.

George says Adidas has made a brave move in standing up to Sports Direct, but this could be a pivotal moment in sportswear retail.

“Adidas and Nike would recognise that the UK is one of the most discounted markets for their brands.  They’re worried as [Sports Direct] branches out internationally that they will be under similar pressure there,” he observes. “They’re making a stand and saying ‘ours is a premium product and unless you give us a proper price, we’re not going to give it to you’.”

One sportswear retailer points out that the brands hold the power on a global scale, but on a regional basis certain retailers are “important and powerful”.

However, next year will be very important for the sports market with the World Cup in Brazil, where the global nature of Adidas’ football business will come to the fore. 

With the power to pull the shirts of Argentina, Germany and Spain from sale ahead of one of the most eagerly anticipated tournaments in decades, Adidas could deliver a harsh blow to Sports Direct that could leave it battered and bruised.