Possible Strategies For Defending Core Business: A Case Study On Sport Direct

Background of the organization- Sport Direct

In the recent time, the global economic recession has created a business world that is quite different as well as more complex than it was in the previous decades. Hundreds of businesses have vanished and the consumers have become extremely price sensitive and reluctant purchasers of products and services. However, many organizations have effectively fought with the challenge of dynamic market and developed their strategies to remain competitive in the market. Due to the continuous competition in the market, the organizations have understood the rush of developing their strategies. Some organizations set particular direction with the possible strategies that can be applied to deal with the possible threats. Likewise, based on the strategic direction, the firm develops long-term mission, vision and strategic goals. As mentioned by Rosen (2006), the strategic management can be defined as the art and science of formulating, implementing and evaluating the cross-functional decisions that enable an organization to achieve its objectives. Thus, to understand how strategic management contributes to the future development of the organization, Sport Direct, UK has been selected as the case study. The report shows how Sport Direct would use the strategies to remain active in the future market.

 Sport Direct is UK’s leading sports retailer developed by Mike Ashley in 1982. The firm has now expanded to become UK’s leading sports retailers by revenue as well as operating profits (Sportsdirect.com 2017). In addition, the firm has become the owner of a significant number of world famous sport, fashion as well as lifestyle brands. Sport Direct operates almost 270 stores across Europe.  On the other side, the firm operates 420 stores in UK. The firm is determined to expand the business in EEA   countries such as Austria, Belgium, Bulgaria, Netherlands and Romania. The overall revenue of Sport Direct was £ 2.832 billion in 2015 (BBC News 2017).  

Sport Direct expects to become a leading sports and lifestyle retailer globally and to deliver sustainable growth for its shareholder in the medium to long-term. The firm has implemented the strategies to provide an unrivalled range of high quality leading brands to its customers and maximized the efficiency and the effectiveness of the operation to deliver tremendous experience. In addition to this, it is based on four key objectives that are outlined in the following.

• Identify-Brand acquisition as well as property enhancement
• Invest-Store Portfolio as well as Workforce
• Develop- Website and M commerce, increased products range
• Promote-Largest range of products

When the competitors in the market are busy in identifying the culture and trends of people to develop the products, Sport Direct paid the attention to global sports environment. The firm has chosen the category sports, which means the major emphasis of the firm is on the sports products. The sports retail division supplies a large range of sports as well as leisure equipment across the array of a global brand with inclusion of firm owned brands such as Dunlop, Slazenger and Lonsdale.

Strategic directions of Sport Direct of past five years

As the global sports have grabbed a considerable attention, Sport Direct started supplying an increasing range of competitively price sports as well as leisure equipments, clothing, footwear, accessories under a mix of brands. The firm used the strategy of stocking the third party brands like Nike, Reebok and Puma (Shank and Lyberger 2014). A large proportion of revenue in the stores is gained from the sales of Sport Direct owned and licensed in branded products that allow the retail business to generate the higher profit margin. However, at the same time, the firm has differentiated its own store from its competitors in respect with the products on sales and the competitive prices at which they are offered. The overall revenue of the firm increased to £ 1,599m (2010 £1,452m). The global retail sales increased to £ 132.3m, which was £ 119.9m in 2010 (Sportsdirect.com 2017). In 2011, Sport Direct also experienced the growth in online revenue. Therefore, the firm is looking for the opportunities to enhance this revenue stream.

Experiencing the growth in 2011, the firm has provided a full “multi-channel approach” to the retail market of UK (Leonardi 2016).  With continue focus, the firm has identified the opportunities for the development through in-store specialist collaboration as well as acquisitions. In addition, as there was a slight growth in the online revenue in the previous year, Sport Direct has developed the online opportunities and leveraged SPORTDIRECT.COM fascia (Sportsdirectplc.com 2017).  The firm made the investment on its own stores in UK and Europe to persistently increase the portfolio. To keep the performance intact, Sport Direct also invested on the employees by developing a “Bonus Share Scheme” to reward the achieved performances (Pessoa and Van Reenen 2014). The firm paid the attention to the promotion of globally recognized brands.  The organization owned 50.1% stake in third largest retailer in Portugal Sport Direct.  The overall revenue across all divisions in 2012 increased to £ 1807m (£1599m in 2011) (Sportsdirectplc.com 2017). The online sales increased to £174m, which was £96m in 2011 (Whish and Bailey 2015).

The growth continues in 2013 as the firm expanded its operations with 396 stores in UK. The majority of stores are operated under SPORTSDIRECT.COM, which was developed in 2012. The firm continues to develop its in-stores areas with a substantial unitary rollout for its Dunlop and Everlast brand. The major change that occurred in 2013 is firm’s expensive interests outside the UK include completely owned retail outlets, joint venture with other retailers and stores. Throughout the year, as the aspect of significant growth, the firm opened 19 new stores in Europe (Sportsdirectplc.com 2017).  The firm applied the strategy of partners in new territories but continuing to increase its operation in the nations where the firm trades. In 2013, the firm has continued its expansion of the premium lifestyle divisions. In October of 2012, Sport Direct purchased The Flannels Group and in February 2013, the organization acquired 114 stores and certain assets from the administrators of the Fashion retailer Republic. The internal sales revenue reached to £ 185m in 2013, while the premium lifestyle brand sales reached to £128m (Sportsdirectplc.com 2017).

Detailed industry analysis

The premium life style divisions of products continue to evolve as well as expand with the purchase of the remaining 20% of Cruise during the year 2014 (Sportsdirectplc.com 2017).  The business model is focused on the long-term sustainable growth, whereas the firm continues to enhance its business in the UK. The firm continues to use the skills and knowledge it has gained to expand its sports retail business across the rest of Europe. The major strategy of the firm is to maintain the position as the market leader in Sport retail sector in UK gaining the momentum in its expansion into Europe. The organization accelerated European expansion with the acquisition in Austria and Baltic region. The growth in online revenue increased to 26.8%. The firm’s overall revenue in 2014 was around £ 2,706.0m.

Threats of substitutes products- Threats of substitutes of products is high, as there are several possible substitutes products such as home brand products from the rival shops that are comparatively less expensive such as JJB Golf Clubs, Foot locker, Inc and Snow & Rock Sports Ltd (Rugman,  Oh and Lim 2012). A way round this threat will be for Sport Direct to formulate their own named brands that are cheaper than brands like Nike, Adidas, etc.

Figure 3: Porter’s five forces

(Source: Rugman,  Oh and Lim 2012)

Bargaining power of customers – The threats of buyers are comparatively moderate, as the market is competitive. Though Sport Direct has the largest market share with increasing number of stores and online growth, the customers have the options to switch to other brands. Foot locker Inc is selling the similar products at low price in European market, which could be a potential threat for Sport Direct (Kim and Mauborgne 2014).

Bargaining power of suppliers- The bargaining power of supplier is comparatively low as Sport Direct has many suppliers for own brand like Dunlop. On the other side, the competitor in the industry Snow & Rock Sports uses the private contractors to produce its shoes (Turker and Altuntas 2014).

Threats of new entrants- The competition in the sports goods industry is always high, which makes it difficult for new entrants to get in the market. Sport Direct has highest market share in UK and Europe (Wrigley and Lowe 2014). Likewise, the competitor like Footlocker is equally dominating the market. Hence, the new entrants may not be able to remain competitive in the market unless it has strong revenue growth in the global market. Thus, threat of new entrants is comparatively low.

Competitive rivalry- As discussed earlier, Sport Direct is presently leading the market in the sport retail industry. Innovation in every year is their major key to success. The innovative store in Liverpool stocks the low price popular brand and stocks brands for popular athletes. This is entirely a new concept introduced by Sport Direct in sports retail industry (Paoli and Donati 2014). On the other side, the online competition is also one of the major reason based on which they have managed to stay ahead. So, the competitive rivalry is medium.

Cost leadership- The success of Sport Direct lies within the fact of devastation that has taken place in UK’s retailing. As put forward by Sun et al. (2014), around 14% of the retail outlets of other firms are estimated to be vanished. However, increasing range of products helps Sport Direct to remain active in the market. As the number of stores across Europe and UK is comparatively high, mega-deals hang throughout its stores, which often resemble jumble sales (Ardizzone and Mortara 2014). Hence, the firm has reduced the cost of products whereas charging industry-average prices. Another significant fact of Sport Direct’s success is that it makes much of what it sells under the variety of brands like Dunlop that have been revived through clever marketing. This allows the firm to keep the price low but the margin high. To reduce cost of operation, the firm closed the operation of unprofitable stores. Other related factors that help the firm to gain competitive advantages reducing the cost of operation are mentioned in the following.

Lean supply chain- Helps Sport Direct to use third-party firms to look after most of its logistic itself. This reduces the costs and helps to increase the online sales that are growing.

Focus strategy- Organizations that use focus strategy especially focus on niche market well understand the market dynamics. Sport Direct particularly focuses on sports products and always follow the recent trends. The firm develops innovative sports equipments that have not yet been introduced by the competitors (Filistrucchi et al. 2014). However, the firm keeps a uniquely a low cost for the products. The online delivery makes it easy for the firm to sell those innovative products at low price. On the other side, the competitors are not able to provide their own products at low price due to low market share.

The new research from Mintel anticipates that sales of sports products could reach a personal best of £7 billion in 2016 up 6% compared to the previous years (Yu, Ramanathan and Nath 2014). Sport Direct in UK might be facing a tough challenge because the competitors are lacing up their trainers as well as donning their tracksuits all in the name of fashion. The large organizations like JJB Golf, Footlockers have developed the quality of products in a way that almost 50% of the customers use the sports clothing, footwear, equipments and other accessories for non-sports use.  The British sports brands have brought fashionable sports brands that can even be used when not exercising. The organizations are hiring the celebrities as the brand ambassadors. As the result, almost 11% of the customers are using the celebrity sportswear.

On the other side, almost 32% of the customers have mentioned that they prefer to buy from the sports retailers that follow the latest fashion trends (Patten and Zhao 2014). Hence, Sport Direct observes the highest preferences of customers about their products due to innovative products. Surprisingly, a high level of consumer interest has been observed in health and wellness trends, which drives the growth sports retail market. Presently, almost 53% of UK customers take part in Sports lesion once week, whereas almost 16% of the customers are following the “no pain, no gain” (Rhodes 2014). Similarly, the younger consumers are likely to buy sports products over the past year. This scenario makes it evident that sports retail sector in UK would probably experience a tremendous growth if the trends and innovations are simultaneously followed.  

Mission of Sport Direct implies that the firm aspires to become a leading sports retailer in the global market. The firm is determined to provide sustainable growth for the shareholders in the medium to long term by providing the customers with unrivalled range of high quality of products.  On the other side, UK and Europe is the potential markets where people always follow the recent rends when they a buy product. Therefore, there is an increasing demand of highly developed sports apparel and equipments as almost 32% of UK customers in Brit’s survey have mentioned that they prefer the brands that follow the recent trends (Warren 2014). Understanding this needs, the firm has maintained the discipline to ensure that customers receive what they require. It has increased the range of products adding some its own brands to fulfill the market demands.

Strength v  SPD is UK’s biggest sport retailer with highest number of stores (470 Stores) v  Tie-up with many large brands like Nike, Adidas, Reeebok v  Savvy pricing strategy dominates the market and increase the capability of the retailer v  Strong online presence in European market with the tag line 24H delivery	Weaknesses Ø  High employee turnover due to poor employee benefits Ø  Highly competitive industry leads Sport Direct to slow growth in market share  Ø  SPD runts its operation with poor margin that creates uncertainty about the future profitability
Opportunities Ø  As the economic issue  in Europe is slowly being resolved, the company has tremendous opportunity to build the operation both in Easter and Western Europe Ø  Like Europe, presently Asian has highest demand of sport products. SPD has the opportunity to get in Asian market	Threats Ø  Increasing cost of raw materials could negatively influence the revenue as  SPD operates at low profit margin Ø  Changes in the taxation policy could adversely affect the functioning

Table 1: SWOT analysis of Sport Direct

Existing strategic capabilities of Sport Direct strengthen the firm to deliver an unrivalled range of high quality of leading brands to its customers and enhance the efficiency and capacity of its operation to deliver the experience. The retail channels of Sport Direct including the standalone stores as well as multi-facia retail space contribute to its operational growth (Sportsdirectplc.com 2017). However, the suppliers of Sport Direct have fueled the growth of the organization. As the firm runs the operation globally, it is reliant on the effective distribution of goods from when they are distributed by the manufacturers to when the products are sold in stores.  Thus, the firm has developed a good relationship with the manufacturers.  Yu, Ramanathan and Nath (2014) Robert has defined strategic capabilities in two different forms namely resource and competence.

The employees of Sport direct are one of the major resources as the success that SD enjoyed is the result of loyalty and enthusiasm of 24000 workers (Sportsdirectplc.com 2017). In addition to this, the strategic capability of Sport Direct is embedded with the strategic acquisition and ability of making frequent investment. This is because the board remains committed to its organic as well as inorganic growth. The firm has the capability to maintain an appetite for strategic opportunities alongside the work being implemented on the review of Sport Direct’s people strategy. Moreover, the firm has gained a centralized commercial function, which brings a significant scale benefit to the business within the organization. This enhances the efficiency regular operation and enables significant synergy potential when approaching acquisition.

The business scenario and the profit margin indicate that Sport Direct has been enjoying a sales boost from the unexpected popularity of online services. From past five years, the firm has achieved the profitable growth due to its increasing number stores at the perfect location of each city across Europe and UK. However, as the competitors like JJB Golf Clubs, Footlocker, Inc and Snow & Rock Sports Ltd have used innovation in its products, which might affect operation of Sport Direct (Fernie, Fernie and Moore 2015). Moreover, the firm has been running the operation only in existing UK and Europe markets, which enhances the possibility of market saturation. Therefore, Sport Direct should only focus on expansion of market.

Market Development- The demands of Sports around the globe have been increasing since the World War II and this will be increasing in the coming future. Thus, to defend its core business, Sport Direct could enter Asian market such as China, Japan, India, Korea and other nations. Asian market is one of the largest markets where any business gains the highest profits due to the large customer base.

Especially, Thus, Sport Direct could get into the China market with the existing products, which means the firm could use the strategy of market development with the old products. This strategy could bring in a huge return to firm, as there is a high demand of western products in the Asian markets. Notwithstanding, when Sport Direct needs to position its brand, they shod not copy their own positioning to China market as very few times it works. Especially, western company Sport Direct has to change their positioning when it needs to enter China market. The major advantage of China market is that the customers have many choices at competitive price. Sport Direct has to consider that in China sports lover are the young people and they are more sensitive to fashion instead of price.

The Sport Direct should get into the China market as a large population of China takes part in the global sports. As put forward by Low and Lim (2012), China’s sports market is projected to increase by leaps and bounds in the long term as the nation ramps up its resource to facilitate the development of physical activities. Moreover, in China, Sport Direct should launch sponsorship marketing through celebrity ads, spots show and stadium. The strategy of sponsorship could be effective for Sport Direct as other sports brand such as Adidas and Nike have applied sponsorship and strengthened their positions.

When the firm is in need of business expansion, the major area, the firm needs to focus on is the resources.  As put forward by Banalieva and Dhanaraj (2013), financial resource, technical resource and the human resource are the aspects that need considerable attention.  

The strategic capabilities of Sport Direct discussed above include the human resource. Currently, Sport Direct team is comprised of 29000 people. However, at the time of getting into China market, Sport Direct needs to hire workers from China only and it has to maintain China’s employment policies. This means the firm cannot apply their “Zero hour” contract policy (BBC News 2017). The Chinese government has always regarded promoting employment as the strategic task for socio-economic development. Thus, Sport Direct has to follow the policy developed by the regulatory bodies of the target market.

Financial resource- Establishment of a business in a new market is the matter of large investment. However, as Sport Direct itself is a large brand; thereby it does not need to implement the strategy of joint venture and franchising. Notwithstanding, in a large competitive market like China, it has to bear the possible cost such as the cost of land, the cost of store decoration, cost of importing goods from foreign country, the cost of new suppliers. In addition to all these, Sport Direct has to bear the cost of taxation, cost of technology and others.

Technological resource- Advancement of technology is a largest contribution to the establishment of business. The online revenue of Sport Direct increased to 31.09% in 2015, which means the firm has the capability boost the sales through electronic channels. However, as China is technologically developed, Sport Direct might not have to import technology from the domestic market. 

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