As a hack I can tell you that Mike Ashley is the gift that keeps on giving.
The gaffe-prone, stoutly built executive chairman of Sports Direct has gone from never speaking to the press to seemingly doing nothing else. And getting it all wrong. Repeatedly.
His intentions are good but he just cannot seem to pull off that one PR coup that he hopes will reverse months of damaging coverage of very shoddy working practices at the retailer’s Shirebrook complex in Derbyshire.
Last week he invited anyone in Britain who fancied it to come up to Shirebrook for Sports Direct’s annual meeting – although it was mostly shareholders, union officials and the press corps who took him up on the offer. This new era of Mike Ashley-style glasnost all started off well, until about 45 minutes into the meeting when he lost his temper with union officials.
It was an unscripted misstep that he then rounded up by turning a supposedly practiced demonstration of staff strip search procedures into a farce by accidentally pulling a massive wad of £50 notes out of his pocket.
It is a cliché but you literally couldn’t make any of this stuff up. But while there was a bit of something for everyone at the annual meeting last week, the panto-style antics of Ashley may have detracted attention from important remarks he made on the future strategic direction of Sports Direct.
This is a sportswear retailer whose profits are falling steeply and which is in the midst of fundamental change that is not just related to its working practices but also encompasses its entire pricing and merchandising tactics as well as its property strategy.
Last week Ashley likened the shift the group was undergoing as akin to a “long jumper becoming a pole vaulter”. What he meant was that for Sports Direct, the “pile it high, sell it cheap” model no longer works. Nor does its strategy of rolling out stores with cheap-as-chips fit-outs in which Sports Direct’s own brand labels are crammed in alongside a smattering of last season’s Nike trainers.
Nike and Adidas and other big brands have made it clear they are no longer happy for their products to be in stores that don’t fit their profile. This is why JD Sports has been winning at Sports Direct’s expense with more upmarket stores and the cornering of the “athleisure” sportswear market.
It was crystal clear last week that change was afoot after Ashley uttered the words, “We have to be more respectful of third parties’ brand equity.” Even he couldn’t quite believe he had said that, but the attitude is key to a revamped Sports Direct business model.
What this means is that Ashley is committed to having lower profits – Sports Direct’s earnings are likely to fall by £80m in the current financial year compared with last year – so he can plough more money into the store portfolio.
Ashley said that Sports Direct intended to speed up its store refurbishment programme, where it is creating better-quality flagship-style shops worthy of the big brands, from two stores a year to up to 12 outlets a year.
Sports Direct is also buying property freeholds in an investment programme
being handled by Michael Murray, the future son-in-law of Ashley. Buying freeholds may be expensive but it could make sense, particularly if Sports Direct wants to roll out more conjoined Sports Direct and Flannels stores – a format it has in Plymouth, for example.
Ashley said at the meeting last week that Sports Direct would buy vacant property, development land, redevelopment projects and even multi-tenanted projects, such as small retail parks. As of 24 April, the retailer had already ploughed £250m into property and it expected that to rise to more than £300m.
Sports Direct is not only on a property buying spree but considers its real estate strategy fundamental to the rehabilitation of its image. Whether it will work remains to be seen, but what is not in doubt is that the old model of Sports Direct, where hugely profitable operations were built on the back of vast quantities of cheap labour, is dead.
Deirdre Hipwell, retail and M&A editor, The Times
