JD Sports Fashion finds itself in a position that many UK retailers have attempted to reach but failed. It has cracked the US market.
Plans to open between 500 to 600 new stores over the next five years in its most “significant market in premium sports fashion” is a vote of confidence it can continue its growth Stateside.
UK retailers, including Marks & Spencer, Sainsbury's and Tesco, have tried to enter the lucrative market across the Atlantic and have ultimately left with their tails between their legs.
JD Sports' success will have others wondering what it did right, and where they went wrong.
Entry into the market with Finish Line (NASDAQ:FINL) acquisition
Let’s rewind to 2018, when JD Sports’ first entered the US with its US$558mln takeover of sports retail chain Finish Line (NASDAQ:FINL).
The acquisition is described as “key” by City analysts as it gave JD Sports a foot in the door, but it’s the retailer’s post-purchase strategy to which it can attribute its success on.
Ousted chief executive Peter Cowgill said at the time the deal marked a “momentous step” in its global expansion.
He also said the respective teams would collaborate to “bring best-in-class retail theatre and multi-channel consumer experience to the US.”
JD Sports did exactly that. It kept hold of Finish Line (NASDAQ:FINL)’s management and leant on their expertise of the tricky US market before making any drastic changes.
A spokesperson noted that JD Sports made tweaks to the Finish Line (NASDAQ:FINL) stores, drip-feeding its own product mix and figuring out what worked and what didn’t before attempting a full conversion which ultimately delivered an uplift in performance.
Since the takeover, it has amassed 1,244 stores in North America across its brands, including Finish Line (NASDAQ:FINL) and Shoe Palace, which it acquired in December 2020, of which 138 operate under the JD Sports brand.
Relations with suppliers
Clive Black, retail analyst at Shore Capital, heaped praise on JD Sports for its relationship with suppliers, particularly Nike, as part of its success.
The Manchester-based firm offers an array of clothing brands, catering to a range of customers in terms of style and price. A useful characteristic when entering a new market.
It needs to maintain these strong relationships for sustained success, given the two largest global sportswear companies, Nike and Adidas, are both pursuing direct-to-consumer strategies.
Different markets to Sainsbury’s and Tesco
As mentioned, JD Sports isn’t the first UK retailer to venture across the Atlantic, it’s just the first to have achieved success.
Most notably, Sainsbury's, Tesco and Marks and Spencer all tried through the purchase of various subsidiaries over the past 40 years.
Shaw’s Supermarkets, a retailer in the northeastern United States, was bought by Sainsbury's in 1987 before it was disposed of 17 years later, for example.
Black notes the disparity in success in the US between JD Sports and the grocers is largely down to the different markets the two operate in.
JD Sports’ products tend to be high margin, while groceries are generally lower margin.
Of course, margins are not the only reason (Sainsbury's claimed at the time it sold Shaws that the UK grocery market was the most competitive it had ever been), but tight margins leave little room for error.
UK acquisitions?
JD Sports really hammered home that US expansion will play a key part in its strategy over the next decade.
Indeed, it plans to have 1,800 stores in North America by 2028, 700 of which it hopes will trade under the JD Sports brand.
But the group has a huge amount of cash lying about, some £1.4bn, which could make businesses closer to home buy-out targets.
Next and Frasers have set the pace in that regard, vacuuming up ‘failing’ brands and absorbing their product lines and operations.
JD Sports could look to use some of that spare cash in a similar way, and Asos, which is drowning in its need for cash, could soon be on the market.
An opportunity to purchase a brand which is 90% off historical share price highs that already has infrastructure and operations in place could be a perfect option for JD Sports, should it wish to expand closer to home.