Sports Direct: the rise of Britain’s craziest retailer

Sports Direct: the rise of Britain’s craziest retailer

It may not be the prettiest retailer to look at, by Mike Ashley’s Sports Direct is in the FTSE 100 and worth more than £4bn

THUMB (2)

Mike Ashley still controls more than 60pc of Sports Direct and serves as executive deputy chairman Photo: Action Images

By Graham Ruddick

7:11PM GMT 02 Jan 2014

Sports Direct may well be the craziest business on the high street. Not only is it run by Mike Ashley, a pantomime villain in Newcastle, but it has publicly fallen out with one of its two biggest suppliers, employs the vast majority of its workers on zero-hour contracts and has stores that resemble a jumble sale.And yet, while Sports Direct may be unconventional, it has also been hugely successful. Last year its shares rose 86pc and its sales were up more than 20pc.

This means that now, Sports Direct is also the craziest business in the FTSE 100. It entered the leading share index for UK companies in September and is worth more than £4bn.

The secret to the company’s success lies in the Derbyshire town of Shirebrook, which, fittingly, is an unconventional place to find the headquarters of a FTSE 100 company.

Sitting on a desolate piece of land on the outskirts of the town, which is near Mansfield, is Sports Direct’s enormous warehouse. On a wet winter day, the area feels like the coldest place in Britain, but this is the beating heart of Britain’s largest sports retailer.

 

From here, Sports Direct’s stores and online business are supplied with the thousands of different products that they sell. However, Shirebrook is also home to the Nike Academy, where the retailer trains its staff, and new-look Sports Direct and USC stores, which have been built next to the warehouse.

The key to Sports Direct is its logistics. The ability of the company to move stock around – whether to stores or to a customer’s home via online delivery – quickly and efficiently.

It’s not a glamorous aspect for a retailer to focus on, but on a rare visit to Shirebrook with Dave Forsey, Sports Direct’s chief executive, it is clear the company takes great pride in what it does behind the scenes.

The rival that Ashley and his team appear to admire most is Next. Forsey makes constant references to the fashion retailer and its ability to run a profitable business across stores, catalogues and the internet. This focus on slickness – which Forsey refers to as “our Coca-Cola formula” – appears to be at odds with the state of the company’s high-street stores.

“I think you only really understand what we stand for as a business when you come here,” he says. “That could be the same for any retailer. If you have a poor experience or you go into a store that is not up to scratch, you could have a completely different perception of the business versus coming to a new store or coming here and seeing what we have been working on for so long.”

Forsey says that since 2008 Sports Direct has focused on going “back to basics”. Five years ago, the company looked to be in turmoil. After floating at 300p in 2007, its share price dropped to just 32p amid concerns about the performance of the retailer and maverick style of Ashley, who founded the business in 1982.

“It sounds a little bit naff doesn’t it, but it was a recognition that we just go back to doing what we do the best. The availability, the product categories, the specialist collaborations, the systems.”

On top of this, Sports Direct introduced a generous share scheme that helped to reinvigorate full-time staff. In August, 2,000 staff collected a payout worth £112m, meaning a worker earning a £20,000 salary bagged a payout worth £79,000.

At the heart of it still, of course, is Ashley. In football circles he is lampooned as a clueless Cockney who hired Joe Kinnear as Newcastle’s director of football, renamed St James’ Park and made Wonga the club’s sponsor.

But as a retailer, Ashley has few peers. His genius was in the business model he created by buying up brands such as Dunlop, Lonsdale and Slazenger to sell alongside Nike and adidas. Ashley’s strategy, in broad terms, has been to get customers through the doors by selling products from the brands he owns at cut price, and then making a margin on adidas and Nike’s products.

Ashley still controls more than 60pc of the business and serves as executive deputy chairman.

“We have got Mike as a massive strength of the business,” Forsey says. “The whole team benefits from his passion, enthusiasm and creativity around how we should tackle the next challenges. It is not just the Mike Ashley story. He’s not the only one controlling everything, but he’s such a key part of bringing the whole thing together. The rest of the team benefit from him and he benefits from having us as well.

“He is primarily focused around – and enjoys most – the operational side, the product and the logistics. His team is set up to help the buyers and help the retail and to develop the business. That is his passion and what he enjoys the most. I am quite different, and the two strengths that we have match together quite neatly.”

Last year was a momentous one for Sports Direct in terms of the business getting recognition for its performance by entering the FTSE 100 and the huge payout to staff.

But this was tainted somewhat when it emerged Sports Direct’s 20,000 part-time employees are on zero-hours contracts, meaning they cannot be sure of how many hours they will work each week. The company is yet to publicly defend the policy, but speaking in Shirebrook, Forsey outlined the company’s thoughts on the contracts.

“There is not a lot I can say about the zero hours in general,” he said. “There has been some stuff that has come out from the Chartered Institute of Personnel and Development. Those sorts of things are balanced, and that is what it should be. It shouldn’t be just recognised as being not popular with a certain part of the workforce.”

The next 12 months are likely to be action-packed for Sports Direct. It is a World Cup year, so the stores should benefit from a pick-up in sales of football gear. However, Ashley must first try to resolve a row with adidas, which is threatening to stop supplying Sports Direct with its key football shirts, including those of Chelsea and the Spanish national team.

One of adidas’s problems with Sports Direct is the state of its stores. However, gradually Sports Direct is modernising its outlets as leases expire and it moves to larger locations. In 2014, this will become more obvious to shoppers because Sports Direct is moving into HMV’s former flagship store on Oxford Street.

The opening of a new London outlet should help to demonstrate why the craziest business on the high street has also been one of the most successful.

“I don’t mean to be patronising, but it’s something I don’t think we have done enough of,” Forsey says. “To really get over what we are working on and what we stand for as a business. I think Oxford Street will make a big difference, so that everyone can actually see what we are working on in an environment that they are used to. It will make a bit more sense.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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