For some time now, Mike Ashley has been aware that drastic action is needed at his beloved Sports Direct.
The retailer that he founded 35 years ago has been in the doldrums for many months, hit by allegations over its working practices, poor corporate governance and soft trading. All this caused its share price to halve in 2016.
If there was any doubt that Ashley recognised that action was needed, the presentation handed out to press and investors at the AGM last September was entitled ‘Time for Change’.
The latest attempt to reinvigorate the business appears to be a strategy to sell off some of its old brands such as Everlast, Lonsdale, Karrimor and Kangol.
Sports Direct started the process last month when it sold the Dunlop brand to Japanese tyre and rubber company Sumitomo Rubber Industries for £112m.
The retailer justified this by saying it does not “currently have the bandwidth to develop and manage international brands simultaneously”.
It has also faced a shareholder revolt over its chairman Keith Hellawell, who remains in office thanks to Ashley’s controlling vote.
The ‘Selfridges of sport’
Sports Direct is focused on upgrading its store in its bid to become the “Selfridges of sport”. Ashley has also committed to spend around £300m a year on new freeholds to develop the business.
But is this the right approach?
“Strategically I think they are doing the right thing in putting all their eggs in one basket. Something drastic needs to be done and they are starting to do it”
Jonathan Pritchard, Peel Hunt
Analyst Jonathan Pritchard at broker Peel Hunt believes it is. “Strategically I think they are doing the right thing in putting all their eggs in one basket. Something drastic needs to be done and they are starting to do it,” he says.
“There will be the odd die-hard Sports Direct fan who loves the current layout and doesn’t want them to go upmarket, but Mr Ashley has got no choice.”
In terms of brands that could be offloaded, Pritchard suggests Everlast “retains credibility” but Karrimor is “not the brand it used to be”.
Pritchard was impressed by the money that Sports Direct got for Dunlop, but whether the retailer will be able to bag similar amounts for its other brands remains questionable.
As well as boosting the coffers, selling off the old brands will allow Sports Direct to give more space to key third-party brands such as Nike and Adidas.
By boosting its relationship with these global brands, only then can it dream of being able to compete once again with its fierce rival JD Sports.
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