Nimble JD Sports leaves M&S standing in the race for a Footsie listing The Observer Retail industry Nimble JD Sports leaves M&S standing in the race for a Footsie listing With a place among Britain’s top 100 companies at stake, the once mighty brand finds itself being left behind yet again
It’s a high street that encapsulates the tale of two retailers. On the Holloway Road in north London, Marks & Spencer will shut up shop on Saturday after 105 years as part of the local community.
Just a few days before the doors close for the final time, the company, which joined the stock market in 1926, could be turfed out of the FTSE 100 index of leading companies for the first time since the blue-chip index was set up in 1984.
Just a short walk from the M&S front door is a small JD Sports shop. On Thursday it was busy with shoppers of all ages, many of whom emerged with one of the shop’s distinctive brightly coloured bags over their shoulder. JD is set to join the FTSE 100 for the first time, potentially jumping into the spot vacated by its older, and ailing, rival.
The M&S share price has halved in the last five years. It now has a stockmarket value of just £4.4bn, about £1.6bn less than that of its much young rival JD Sports Fashion.
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After bumper growth at home and a number of acquisitions that have turned JD into a worldwide business, the sportswear group has more than tripled its sales in the past five years to £4.7bn. Its profits are up three and a half times to £355m.
Sales at M&S last year were more than £10bn, but last month it reported profits down 62% to £67m after a £500m bill for restructuring that included more than £300m to pay for closures such as Holloway Road.
JD’s executive chairman, Peter Cowgill, has been awarded a controversial £6m cash bonus for what the company called an “outstanding performance”. JD has been riding the crest of a fashion wave driven by a shift towards casual dressing across generations and in the workplace as well as in the pub and at home.
Consumer spending on sports and outdoor fashion has risen by nearly 50% since 2013 to an estimated £7.6bn, according to market research firm Mintel. That’s partly down to the athleisure trend where taking part in sporty activities, or at least dressing like you might take part in them, has become highly fashionable.
Trainers, once the preserve of runners and teens, are now commonplace in many offices, and women are as likely as their male peers to own an array of sports shoes for different occasions. “The trainer has become a big fashion item. Women have trainer wardrobes and there is a section that are following product drops and limited editions in the way men have done for years,” says Lorna Hall, director of retail at trends insight firm WGSN.
Founded in 1981 by John Wardle and David Makin – the J and D behind the name – with a single store in Bury, the retailer has been well placed to capitalise on that shift as it has had big brand trainers at its core from day one.
The self-styled “king of trainers” is completely at home with the labels that are currently sought after, because the trend has its origins in the 1980s and 1990s, when JD grew up. “It has the history and heritage to be credible,” says Hall.
Meanwhile men, who make up the majority of JD’s shoppers, have become much more interested in fashion – with the UK market for menswear booming by 30% since 2013 to an expected £16.1bn this year, according to Mintel.
Its understanding of fashion and focus on small snappy stores have helped it fend off the might of Mike Ashley’s Sports Direct, which has rubbed many rivals into the dust with its mix of discounted big brands and cheap own-labels.
Strong relationships with the big labels, where Sports Direct has a more troubled history, have ensured JD gets the latest releases and exclusives on trainers and other sportswear.
As Naza Linton, a 34-year-old regular shopper outside the Holloway Road store, points out, there is little competition in the market. “They are really only in competition against themselves and maybe Footlocker. Sports Direct doesn’t stock the same level of clothing. This is more exclusive and up to date. They do their research.”
JD doesn’t just have the right trainers on the shelves. Its relatively new store estate, with an average lease length of just four years, has enabled it to adapt and shift with changing habits – taking on larger shops to house more choice and retail theatre in some areas, or moving out when a high street has become lacklustre.
All of this helped JD deliver a steady rise in sales at its established sports stores in the UK and Ireland in the year to February, when much of the rest of the clothing market was going into reverse.
Richard Lim, chief executive of Retail Economics, said: “The thing JD has done so well is really understood what customers want. It has also embraced change and technology and the experiential element of retailing that’s become so critical. It’s an excellent management team that’s been able to execute effectively.”
But Lim adds: “It is much easier for new and emerging retailers to get it right.”
In contrast, M&S – which was founded on a Leeds market stall in 1884 – has been hampered in adapting to the shift to online shopping by its legacy of 300 clothing stores. Many of the chain’s shops, built in the 1950s or earlier, are no longer in the right place or are the wrong size for their local market.
In many locations, such as Holloway Road, the investment required to bring a store up to date is impossible to justify when clothing sales have been falling for years. Tired stores, a poor online service for clothing and home – and no online grocery service – have only served to ensure M&S is off the list for younger shoppers.
Samantha Dover, senior retail analyst at Mintel, says: “JD is very quick and responsive to what’s happening and willing to experiment and move forward. Retailers willing to take risks are the ones that do tend to perform better. There has been a lack of risk-taking at M&S partly because of the sheer size of the business.”
A deal with Amazon to run its clothing website for years meant M&S was too slow to adapt and to develop an online business that dovetailed with its store estate.
Then a £1bn programme to update IT and distribution systems under former boss Marc Bolland, including a hi-tech warehouse in Castle Donington, was beset by technical difficulties and has never delivered its full promised benefits. Errors have ranged from cutting quality on once reliable basics to confusing sub-brands that have changed their looks and their pricing from season to season. M&S’s total clothing market share is forecast to decline to 6.9% for 2019, according to market research firm GlobalData – a big drop from the 8.8% of five years ago.
The new team under chief executive Steve Rowe and chairman Archie Norman, a former boss of Asda, appears to be finally taking action in closing or relocating more than 100 stores. It has also tried to enter the online food race with a £750m deal with online grocery delivery specialist Ocado.
Dover says trimming the estate will leave M&S free to update remaining stores whose dowdy image has seen it losing out not just to JD but to Zara, H&M and Primark on clothing, and everyone from Waitrose to Lidl on food.
If it can find a formula that works, M&S has a ready market among older women, who are poorly served both on the high street and online and much more interested in fashion than previous generations. There are expected to be nearly a million more women over the age of 55 in the UK by 2024.
“There is definitely opportunity for M&S to win back womenswear share if it refocuses back on these core customers,” analysts at GlobalData say.
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