Four months ago, US giant Dick’s Sporting Goods invested £20m in the UK chain. Now it has written its investment down to zero, and hopes for the company’s future have sunk with it
As it did for Team GB, this summer should have triggered a gold rush for JJB Sports. But instead executives at its Wigan headquarters are wondering if the chain’s 40-year career on the high street is finally over.
Last week, hopes for the struggling retailer faded further after US giant Dick’s Sporting Goods, which had looked as though it might ride to the rescue, distanced itself from JJB, writing down the value of its £20m investment in the company – made just four months ago – to zero.
When that cash injection was announced in April, the agreement included the possibility of more funds. But in updating Dick’s shareholders last week, chief executive Edward Stack was clear: “We have no further funding obligation to JJB at this time and will continue to monitor the situation.”
This apparent change of heart had a dramatic effect on JJB’s already battered share price: it closed the week down 30% at just 3.15p, valuing the company at around £13m. When it last updated shareholders in July, JJB’s then chief executive, Keith Jones, blamed poor sales of England shirts during the Euro 2012 tournament for a dire performance that meant it would have to put the brakes on much-needed store refurbishments and ask shareholders for more cash soon.
But JJB has got the begging bowl out four times in as many years, and the cash-hungry business has burned through more than £200m raised from investors while a succession of management teams has showed little sign of effecting a turnaround.
While JJB has been self-destructing, rivals have got stronger. “Sports Direct stands for value; JD stands for fashion; and JJB stands for nothing,” says one supplier. “The people who have been managing JJB haven’t come from a sportswear background and don’t empathise or understand the customer. Now JJB’s not the cheapest and it’s not cool… it’s not very good at anything.”
JJB has only survived a series of financial crunches thanks to the largesse of a small group of investors and its landlords, who have endured two company voluntary arrangements (CVAs) – legal agreements that enable struggling retailers to slash their rent costs. The fundraisings, including the one in April, garnered support from some of JJB’s biggest shareholders: Invesco, Harris Associates, Crystal Amber and the Bill and Melinda Gates Foundation. The question is now, with still no sign of light at the end of the tunnel, whether they will throw more good money after bad.
Insiders at JJB say talk of demise is premature, and that although recent trading has been poor, it has not breached its banking covenants: in July, JJB’s bank debt stood at £17.7m. But it has emerged that turnaround groups, such as Better Capital led by private equity tycoon Jon Moulton, are considering buying up its loans as a means of gaining control.
“As third parties put their hat into the ring to try and buy the group’s debt, the story on JJB has gone from one of hope, given the backing of Dick’s, to one of huge uncertainty again,” says Singer analyst Matthew McEachran.
If JJB were to fail, the list of buyers would perhaps be limited by competition concerns in what is still a close-knit sector. Those with long memories will remember the Office of Fair Trading’s inquiry into the price-fixing of replica football shirts a decade ago, which landed many of the key players, including JJB, then the biggest name in the market, with multimillion-pound fines. Today JJB, with annual sales of £284.2m, is dwarfed by Sports Direct’s turnover of £1.8bn while number two player JD, another possible buyer, is grappling with a new charge – outdoor chain Blacks, which it took out of administration in January.
The estimated £8.5bn sports goods market appears to offer diminishing returns. In the 1990s and early part of this century, sportswear was a thriving sector thanks to its mass adoption as casualwear. But Sports Direct has annihilated the competition with its “pile it high, sell it cheap” approach, leaving niche stores and websites such as American Golf Discount Centre, Decathlon and Wiggle to carve up what’s left.
JJB has been riven by both internal and external battles. It has been unable to recover from the disastrous tenure of Chris Ronnie, chief executive between 2007 and 2009, who made a series of poor acquisitions that saddled it with debt. In April, Ronnie was charged with a series of offences relating to an alleged £1m fraud at the retailer. Ronnie denies the charges.
Analysts suggest the next test for JJB will be 29 September, when a big rent bill falls due. Dave Whelan, its founder, is keeping a watchful eye on his former charge. In 2009, he acquired its health club chain in a generous £83m deal that bought JJB some time. “I don’t want it to go [into administration] and it would be sad for Wigan if it did go,” he says. Although a fraction of its former size, the 180-store chain still employs more than 4,000 people.
If JJB were to collapse, Whelan would be interested in buying “certain aspects” of it: “I wouldn’t be looking at the whole of JJB. There’s quite a lot of things wrong and it’s been badly run.” But there is no reason why a sports shop “run well” shouldn’t succeed, he says: sales in the gym shops, now called DW Sports Fitness, are up 15% “purely on the back of the Olympics”.
Following a recent visit to JJB’s Wigan head office, the supplier left with a sense that it was all over: “There seemed to be no fight, no leadership, no strategy.” JJB has its own Olympic mascot in the shape of gold-medal-winning rower Sir Matthew Pinsent, who sits on its board. But there is little sign of Pinsent’s sporting glory rubbing off on JJB.
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