Sports Direct brand hits rock bottom as profits plunge

Billionaire Mike Ashley’s sportswear empire saw half-year profits fall sharply, with brand perceptions now at an all-time low.

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Sports Direct saw its pre-tax profits fall 25% to £140.2m in the six months to 23 October, as both its business and brand take a bashing.

While chief executive Mike Ashley described the last six months as “tough for our people and performance,” and pointed to deteriorating exchange rates, Sports Direct’s chairman Keith Hellawell didn’t hold back in his assessment.

Hellawell claims an “extreme political, union and media campaign waged against this company” had damaged the reputation of the business. He even equated the media’s negative coverage of the retailer with declining sales and a negative morale among Sports Direct’s staff.

Brand damage

To describe 2016 as a difficult year for Sports Direct is perhaps an understatement, after it suffered from a series of high-profile scandals.

In June, the HMRC investigated media claims it paid workers in its Derbyshire warehouse below minimum wage and improperly punished them for turning up late. According to a subsequent report by the Department of Business, Innovation and Skills, staff at the warehouse were “not treated like humans”.

Most recently, the Financial Reporting Council announced it is investigating Sports Direct’s accounts due to its links with a company not properly disclosed in its financial statements. And according to YouGov’s BrandIndex, the retailer’s brand perception scores have plummeted as a result of these scandals.

Over the last 12 months, Sports Direct’s index score, which comprises consumer perceptions of metrics such as quality, value, reputation and satisfaction, has fallen a massive 13 percentage points. Its score of -13.4 means Sports Direct is bottom of a list of 44 British high street retailers, behind even brands that have gone out of business such as 99p Stores (-3) and BHS (-2.3).

Its reputation score has taken even more of a pummelling, falling at a statistically significant rate of 19 percentage points to -34; once again placing it bottom of the table. Customer purchase intent is also falling, down 0.3 percentage points over the last 12 months.

What’s next?

Despite the retailer’s financials being in free-fall, it has emerged Ashley has spent £40.4m on acquiring a new corporate plane for the business. And this type of story will only add to the retailer’s woes, according to George Salmon, an equity analyst at Hargreaves Lansdown.

He told The Guardian: “The tone of Sports Direct’s first half results is conciliatory to its staff, describing them as its number one priority. However, the availability of the group’s new $50m corporate plane for staff hire is probably of little interest to the vast majority.”

In order to turn things around, the retailer must focus on marketing its higher quality sports brands, according to Salmon. “In addition to a new plane to go with the corporate helicopter, Mike Ashley is spending £300m on the group’s store estate,” he adds.

“Ashley’s also moving the focus away from discounts and towards higher quality promotion of desirable brands, evidenced by new deals with Nike and Adidas. Success here could change things, but for now conditions remain challenging and profits have again been revised downwards.”

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  • Tim Mace 11 Dec 2016 at 5:16 pm

    Sports Direct financials in free-fall? Group revenue +14% for this 1/2 year period. I suspect that they prefer this to rising margins on falling sales!

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