Oh how the mighty fall!

Sports Direct, once the darling of the UK retail sports sector has lost £1.9billion from its share value in just three months! Their founder Mike Ashley has even been forced to abandon his principles and talk to the press where he announced, in a desperate attempt to placate investors, employees, politicians and the TUC, his own personal investigation into accusations of slave labour levelled at the retailer by underground reporters. He even sweetened it further with a pay rise for all employees. Desperate times call for desperate measures!

The thing is that SportsDirect was a pretty good idea. Buying up defunct brands with plenty of residual awareness and often fond feelings and attaching their labels to sweat-shop clothing was close to a brainwave, but somehow they didn’t quite pull it off.

The Sports Direct game played on the very nature of brands. Their trick with names like Donnay, Karrimor, Slazenger, Lonsdale and Everlast made some of the mainstream brands on adjacent shelves appear affordable by association. Investing themselves in the development of Dunlop sports (another acquired brand) particularly in the squash and golf area added authenticity to the master brand as did the later acquisition of the flagship retail brand Lillywhites.

SportsDirect set out to convince consumers they were champions of the people by making apparently premium brands affordable. It worked because they acquired brands that most people weren’t aware had failed. As far as customers were concerned these brands had just slipped below the RADAR, but they still retained something of their brand equity.

However, Sports Direct kind of killed the goose that laid the golden egg by totally milking the brands. Maybe they thought they could keep doing this, starting again each time with more of the same. There are, after all plenty of failed sports brands out there. However, there was a certain inevitability to the outcome we see now. The dumbest consumer will, sooner or later, work out that the goods on the racks have nothing to do with the brands they remember and once you’ve reached that point you’ve become the villain rather than the hero. Instead of becoming the consumer’s champion, I am sure a good proportion of Sports Direct’s customers these days feel exploited, and that’s a very dark place for any retailer.

My belief is that SportsDirect should have aimed their prices at a level that would have allowed them scope to develop the equity of some of their acquired brands – better quality, more involvement in the sports synonymous with the brand names and above all treated with respect in-store. They kind of did some of this with Dunlop squash. They sponsored some of the world’s best players, including two or three world champions, they were seen at the events and continued with some R&D. Even though they didn’t follow this up with the right kind of in-store treatment they did manage to pitch the prices of their flagship racket models up with other premium brands and then hit the mass market with less technical rackets and discounts on out-going premium models. If they had done this with all their brands they’d have accumulated an inventory of mass-market lines that represented great value and drove volume without looking like a Vietnamese market. Then the Nike and Adidas products they also sold that lent authority to the overall Sports Direct brand would have looked to consumers like great value simply because they were in the same store. Other tricks like reducing the desperate look of their sales floor would have reinforced value perception and therefore the “champions of the people” positioning.

While Sports Direct may have understood the value of brands in one respect, they seem to have failed to grasp the emotional elements that make brand communities work. They are not alone in this. Can they reverse their fortunes? Sure they can, but it will require major surgery and it remains to be seen whether they have the bottle for it. They could amble on a while longer as they are, getting increasingly less like a sports store and more like a flea market and given the mind-set they’ve demonstrated so far this looks to be the likely route, but it would be a pity. I still think that Sports Direct in principle makes a lot of sense, even though, right now, their goose may be on the critical list.

First publish on LinkedIn March 2016

Phil Darby
August 3, 2018

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