JD Sports in talks to shed brands as it focuses on core business

According to sources close to the business, the retail group is in talks to shed a number of stakes it has in fashion and beauty businesses.

“They’re offloading any brand that doesn’t fit in with their core sports and outdoor model. Brands that don’t fit in with this strategy are being sold back to their previous owners or offered to the market. This [acquisition strategy] was Peter [Cowgill’s] vision and he’s no longer there,” one source said.

Another added: “For the last few years [JD] has mopped up brands in distress. If you look at its portfolio, it’s vast. But if they’re not generating to the bottom line, they will be seen as a headache.”

Industry experts think this could be a good move for the retailer. One insider told Drapers: “Fashion and beauty businesses have never been core competencies for them, and they haven’t developed a successful strategy for them. It was usually a case of buying a distressed business opportunistically and then thinking they could run it with the trainer brand retailer playbook,” she added.

Global Data’s apparel analyst Pippa Stephens said with the sportswear market still booming following the pandemic and other parts of the retail market now struggling due to surging inflation rates and reduced consumer confidence, it makes sense for JD Sports to focus on developing the key aspects of its proposition to ensure they continue to thrive.

“These businesses are currently only a very small proportion of its overall sales, so offloading them will have little impact on its future performance,” she added.

JD Sports declined to comment on the story.

The news comes as the UK’s biggest sportswear retailer revealed that pre-tax profits slipped 18% year-on-year to £298.3m for the six months to 30 July, despite sales climbing 13.7% to £4.4bn for the same period.

And in its interim results JD Sports non-executive chair Andrew Higginson, said the outlook remains “cautious” for the second half of the year.

With the key trading period ahead, he cited “widespread macro-economic uncertainty, inflationary pressures and the potential for further disruption to the supply chain with industrial action” as continuing risks in many markets.

Trade in the UK, mainly online, initially softened in August and early September he said, with customers slower to transition into heavier weight Autumn products while the weather remained relatively warm and dry. However, the performance has improved again in the most recent weeks.

Higginson joined the business in July, following the sudden departure of former JD Sports boss Peter Cowgill in May.

One industry insider said of the departure: “The board didn’t like the bottle neck Peter created. Everything changed below, apart from the top. It becomes very difficult, especially if you want to scale. You can’t have everything going through one individual.”

In August, the business announced that former B&Q executive Régis Schultz would take on the role of chief executive, effective from September. He has taken over from interim CEO Kath Smith.

International expansion is an important part of future strategy, and a key reason for Schultz’s appointment. At the time, Higginson said that his “expertise of retailing in Asia and the Middle East combined with his ability to drive transformational change through digitalisation,” will help lead the business through the next phase of its journey.

But in a further twist this week, JD Sports revealed that Cowgill is returning as a consultant to the business. With the board agreeing to pay £3.5m to place restrictions on him, such as preventing him from working for competitors or soliciting JD’s employees. These will be in place for two years.

Cowgill will also receive £2m over the course of three years as a consultancy fee, which the Group said would allow the new management team to benefit from his support and “unparalleled knowledge” of the business.

“I am pleased that we have been able to reach this amicable and constructive way forward with Peter covering the next three years,” Higginson said in a statement.

Stephens said that having been at the helm of the company for 18 years, Cowgill will be an invaluable source of advice and information.

One source close to the business said: “For any newcomer, there needs to be some handover and it makes sense to keep Peter as a consultant. He has a vast knowledge of the retail space and has seen so many hurdles. He has answers for everything.”

However, others have questioned how former boss Cowgill will fit into this new structure as a consultant. And whether this is a good thing for continuity or if it will in fact hamper the new CEO putting his stamp on the business.

One former high street CEO told Drapers: “I wonder if Schultz was aware of this deal with Cowgill when he took the role? My bet is, he wasn’t, as it wasn’t on the table at the time.

“I don’t envy Schultz. With Cowgill there, many staff will just refer to him and look towards his views. Cowgill is obviously astute, but also an inspiration to many people. I imagine it will also be hard for him to be on the sidelines while having strong views and experience. But if the combination works then the future for JD looks good,” he added.

In its latest interims, JD Sports said that the progress it is making in its global markets is reflected by the fact that total sales in the Group’s organic retail businesses were 5% ahead of the previous year.

It said this performance is very encouraging, as “notwithstanding the non-comparability of trading conditions in the US, the Group has also faced numerous other challenges in the period including the well-publicised shortage of supply from a number of the international brands and the challenging global macro-economic situation”.

Both Adidas and Nike were hit with supply shortages, as a result of Covid-19 lockdowns in its eastern markets, where products are both made and sold, with the sportswear brands prioritizing their own direct-to-consumer (D2C) sales over their wholesale retailers.

An over-reliance on the top two sportswear brands is one of the retailer’s biggest weakness said one industry source, particularly as these brands shift more towards a DTC strategy themselves. And a key challenge for JD Sport’s going forward will be looking at the revenue share impact this will have and how it can replace it with other brands.

While retailers in the UK, ROI and Europe have been experiencing tough trading, as soaring inflation forces consumers to re-think their spending, JD Sports still recorded impressive, double-digit growth in each region for the first half of the year.

But with a potential recession looming and any price rises largely dictated by brand partners, its new management team will need to “stick to what they’re best at and focus on getting better,” said retail analyst Richard Hyman, if they’re to ride the choppy waters ahead with success.

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