Analysis: How coronavirus has shifted JD Sports boss Cowgill’s priorities

Although the vast majority of its global store estate was closed for weeks during its first half, JD Sports’ overall revenue declined just 6.5% to £2.5bn in the 26 weeks to August 1.

Profits, however, were harder hit, tumbling 61% to £61.9m before tax and exceptional items. The retailer attributed the slump to costs associated with ramping up and running its online operations to meet increased customer demand.

“Before coronavirus, our distribution centre was set up to serve stores and online in a fairly consistent, predictable ratio, which allowed for growth on both sides,” executive chairman Peter Cowgill explains. 

“Overnight, how we operated it had to be completely reframed to accommodate online only.” 

The sports fashion retailer said it shelled out £8m on PPE for staff and invested £2m in its Kingsway warehouse in Rochdale to adapt to social distancing requirements and allow for smaller numbers of staff to work or take breaks at any given time.  

“Overnight, how we operated [our distribution centre] had to be completely reframed to accommodate online only”

Peter Cowgill, JD Sports

Cowgill says that while outgoings such as those represented one-offs, many others, such as ongoing investment in marketing to maintain online sales levels, will represent increased costs for the business over the longer term.

He also points out that fulfilling online orders is “more expensive” because workers “are selecting individual items rather than bulk shipping to stores”. 

The level of investment required to market to new online shoppers is much higher than that required to drive repeat purchases. Cowgill is confident, therefore, that the cash JD is spending on pay-per-click advertising will ease off in the coming months. 

He believes the silver bullet to running its online operation more profitably would be for social distancing measures to be eased. Such a move would allow the business to get more staff back in its warehouses and process online orders more efficiently. Cowgill isn’t optimistic that will happen any time soon, though.

Shift to online

As more and more consumers shop via ecommerce, JD is not only having to grapple with the headache of running ecommerce profitably, but is also considering what the online shift means for its bricks-and-mortar ambitions.

Prior to the coronavirus outbreak, JD was heralded for its experience-led store openings and had plans to open a store a week in Europe during its current financial year.

While the business has pressed ahead with an opening in Paris, and is set to debut in New York’s Times Square next month, Cowgill says the business will be “much more stringent” when it comes to future store openings.

“There is no point investing in these city centres at the moment when footfall is as low as it is. One of the most uneconomic places at the moment has to be Oxford Street – high rents, low footfall, what’s the point?”

Peter Cowgill, JD Sports

 

“Our thought process in the current climate is to put our foot on the ball a bit more and assess whether the weak pulse of footfall starts to increase,” Cowgill explains.

“There is no point investing in these city centres at the moment when footfall is as low as it is. One of the most uneconomic places at the moment has to be Oxford Street – high rents, low footfall, what’s the point?

“We are committed to high-level, experiential stores, but they are suffering in city centres at the moment and in London in particular.”

Store expansion and Brexit

Against that backdrop, JD Sports has shelved nearly half of the European store openings it had originally planned in its current financial year. It will now launch around 30 new shops, 12 of which opened during its first half.

A number of planned UK openings have been put on hold and the retailer says it is “entirely feasible that some planned projects may not proceed under the current lease terms”.

“At the moment, particularly when it comes to city centres and shopping centres, we’ll need some pretty heavy persuading that is the place to invest,” says Cowgill.

“It is entirely feasible that some planned projects may not proceed under the current lease terms”

Peter Cowgill, JD Sports

Investments in store expansion might be on hold, but JD is upping its investment in Europe as it prepares for the UK’s exit from the EU.

Approximately 90% of JD Sports’ stock is purchased from international brands, so the business would be hit hard by potential taxes on its imports and exports in the event of a no-deal Brexit.

The sports fashion chain launched an 80,000 sq ft ‘test’ warehouse in Belgium during its first half. It says it is taking “a number of significant operational learnings” from the site, which it will use to shape “a longer-term, more permanent, European supply chain strategy”.

Cowgill remains hopeful that the government will negotiate a trade deal that enables the free movement of goods between the UK and EU nations. He warns that, without one, employment would be pushed over to Europe and companies like JD would perform “a landgrab on distribution centres in EU territories”. 

Christmas is still coming

While Brexit and, more fundamentally, the coronavirus crisis, have sparked shifts to JD Sports’ short-term priorities, Cowgill believes there are some things even a global pandemic can’t change – the festive peak. 

“We are certainly buying as if there is going to be a Christmas,” he says. “We’re not optimistic about the market as a whole, but what we are optimistic about is JD Sports as a market leader in athleisure, which attracts a multi-branded consumer to store, as is evidenced by high sales retention we’ve achieved.”

By tweaking its strategy to move with the times while continuing to focus on what makes JD unique, Cowgill hopes the sports fashion retailer can stay ahead of the pack through the pandemic and beyond.