Analysis: Why JD Sports has laced up for South Korean expansion

The sports fashion retailer has initially acquired a 15% stake in the South Korean business, but intends to increase this to 50% and rebrand the stores as JD Sports outlets, dependent on Hot-T’s financial results at the end of this year.

Hot-T has a relatively small bricks-and-mortar footprint compared with major footwear players in South Korea such as ABC Mart and Lesmore.

However, the sports-fashion-focused footwear retailer’s 23 stores are in primary locations, such as Seoul and Busan, and will give JD Sports quick exposure to South Korea’s more affluent, trend-setting shoppers.

Hot-T’s customers are brand-conscious and fashion-focused – think a customer that is more likely to visit the store to snap up the latest Nike high tops than browse for sensible running shoes – so JD Sports’ first-class brand offering should pique their interest.

Draw for retailers

JD is not the first UK retailer to have taken an interest in South Korea – Boots expanded to the country last year through a partnership with local health and beauty giant Emart in 2016.

“The South Korean government has made a clutch of cross-border trading agreements, which make it an attractive region for retailers looking to get a foothold in the South-East Asian market”

The South Korean government has made a clutch of cross-border trading agreements, which make it an attractive region for retailers looking to get a foothold in the South-East Asian market.

Retailers including H&M, Burberry, Zara and Uniqlo have all set up shop in the country in recent years.

However, as with any new market, South Korea is not without its challenges.

Grocery giant Tesco offloaded its foray into the market in 2015 and Walmart and Carrefour have also tried and failed to crack the market – of the international grocery players, American chain Costco is the only one that has managed to sustain a long-term presence there.

So it is probably no coincidence that JD Sports has said that, even if it does end up acquiring 50% ownership of Hot-T and re-fascia its stores, the retailer’s existing management team will stay put.

‘Hot trend’

The retailer, which is owned by Shoemaker Inc, posted sales of KRW 25.5bn (£17.2m) in its latest full-year results and a store EBITDA of KRW 3bn (£2bn).

Although it posted an operating loss of KRW 6.2bn (£4.2m), before exceptional charges related to one-off stock write-offs, the retailer posted an operating profit of KRW 600m (£400,000).

“It boasts some nifty in-store technology, including a delivery elevator in its branch in Soeul’s upmarket Gangnam area, which transports shoes that shoppers have requested directly from a storage area beneath the shop”

Hot-T offers styles in men and women’s footwear categories across brands including Nike, Adidas and Puma.

It boasts some nifty in-store technology, including a delivery elevator in its branch in Soeul’s upmarket Gangnam area, which transports shoes that shoppers have requested directly from a storage area beneath the shop.

Shoppers who request a product from the store’s underground warehouse can track its movements in real time on touchscreen displays, and product requests can be fulfilled in as little as five seconds.

Hot-T – an amalgamation of the words hot and trend – has also drummed up a lot of attention from South Korean influencers and fashion bloggers.

The retailer’s store footprint and millennial-focused product range will give JD Sports a relatively low-stakes entrance into a market with a proven appetite for fashionable sportswear – and could spell the start of a much wider physical assault in South Korea and beyond.