Tragic finale for JJB, the retail soap opera

It's been running since 1971, but after years of indifferent management and missed chances, this looks like the end, writes James Thompson
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The Independent Online

If JJB Sports made TV programmes instead of selling sportswear, the retailer would undoubtedly have been a world leader in soap operas with tragic endings. The final episode was all but aired on the beleaguered 180-store chain yesterday when it filed a notice of intention to appoint KPMG, the accountancy firm, as administrator within the next few days.

Its rival Sports Direct is poised to acquire up to half of JJB's stores and other assets out of a pre-packaged administration but there will be no happy ending for many of the Wigan-based chain's 4,000 staff, with about half set to lose their jobs.

Bizarrely, the cast of the soap opera that is JJB seemed to have included a late appearance from Mohamed Fayed, the former owner of Harrods. While it emerged yesterday that a Mohamed Fayed had acquired a 5.7 per cent stake in JJB late last week at cost of nearly £85,000, it was subsequently confirmed that this Mr Fayed was not the billionaire owner of Fulham.

Among the soap's more longstanding protagonists, Mike Ashley, the founder and deputy executive chairman of Sports Direct, played a key role in forcing JJB to admit defeat, after giving it a good kicking over the past five years. Neil Saunders, the managing director of Conlumino, the retail consultancy, said: "The harsh truth is that, in its current form, there is not much room for JJB in a market that has become far more competitive and crowded and where players like Sports Direct have been gobbling up market share.

"Sadly, JJB has compounded this problem with a positioning that is very unclear and not at all compelling to consumers."

But the real tragedy is that JJB has largely scripted its own downfall through chronic mis-management for much of the past decade, after its sales peaked at £934.3m in 2002. For example it embarked on the calamitous acquisitions of the footwear chains Qube and Original Shoe Company in 2007 and 2008, respectively, but both were put into administration in February 2009.

It also emerged recently that JJB owed HM Revenue & Customs more than £5m after incorrectly calculating VAT in its accounts, although the retailer insists it has now paid that liability.

The brutal truth is that successive JJB management teams had every opportunity to turn it around. Its shareholders and suppliers have pumped in more than £225m of funding since 2008. Its four biggest shareholders, left with egg on their face, are the Bill and Melinda Gates Foundation, Crystal Amber, Harris Associates and Invesco.

JJB also failed to capitalise on shedding scores of under-performing shops in two insolvency procedures – company voluntary arrangements – in 2009 and 2011.

Many have attempted to make Chris Ronnie, the chief executive from July 2007 to March 2009, the scapegoat for JJB's woes, but subsequent management teams have also failed.

Mr Ronnie's tenure was undoubtedly ill-fated and included the two footwear acquisitions, a going-concern warning from its auditors and the start of the collapse in its financial performance. For instance, JJB made a pre-tax profit of £38.5m in the year to January 2007 but it had tumbled to a £189.2m loss two years later.

But Peter Smedley, an analyst at Charles Stanley Securities, believes JJB's woes date back much longer than Mr Ronnie's reign. He said: "I still maintain that ultimately the impact of complexity upon complexity kicked in around 2002 with the purchase of TJ Hughes, the discount department store operator." At this time, JJB was still being run by its chairman Dave Whelan, who founded the retailer in 1971 after the former footballer suffered a career-ending injury.

Mr Smedley says: "JJB never upgraded the management team and professionalised the organisation at that time to deal with Sports Direct which had leveraged its market price leadership to embark on aggressive space expansion. They just relied on the buying and trading mentality of Dave Whelan." Mr Whelan exited his interest in JJB by selling a 29 per cent stake to Mr Ronnie's investment vehicle in 2007 for £190m.

Mr Smedley also points to JJB's clothing business, in particular, losing its way. This was not only to Sports Direct but also to discount clothing operators such as the big supermarkets and Primark. He said: "Until recently, JJB's footwear business had remained fairly stable but the clothing business contracted sharply from 2002 onwards." But Mr Smedley explained that even JJB's footwear offering came under pressure due to its inability to offer the sort of credible own-branded and secondary branded offering that Sports Direct had developed to combat adidas and Nike.

While JJB largely sealed its own fate, much credit still has to go to Mike Ashley, who founded Sports Direct in 1982. Part of Sports Direct's success had been its strategy of acquiring brands including Lonsdale, Slazenger, No Fear, Dunlop and Everlast, which have given it better margins and the flexibility to license its products globally with other retailers.

Over the coming days, Sports Direct is likely to acquire up to 90 of JJB's stores out of administration. However, it is unclear if the 470-store chain would trade them as JJB in the long term, and Sports Direct will probably face an inquiry by the Office of Fair Trading into competition concerns.

If Sports Direct does not bag JJB, Stafford Group, the retail-to-shipping conglomerate, is waiting in the wings.

However, whoever buys the remnants of JJB, the biggest beneficiary of its demise will be Sports Direct. This makes Mr Ashley's comments to analysts last year seem a fitting end to the tragic soap opera that is JJB. He said: "I'll finish off JJB first and then I'll move on to JD [Sports Fashion]."

JJB timeline

1971 Dave Whelan, a former Blackburn Rovers footballer, acquires a single store in Wigan to form JJB.

1994 The 120-store chain floats on the London Stock Exchange.

1998 JJB acquires the business of Sports Division to become the largest sports retailer in the UK.

June 2007 Chris Ronnie buys a 29 per cent stake in JJB for £190m.

January 2009 Sir David Jones, who had been a non-executive since 2007, becomes executive chairman.

February 2009 JJB's Qube and Original Shoe Company chains collapse.

March 2009 Mr Ronnie "dismissed" as chief executive. Mr Whelan acquires JJB's fitness club for £83.4m.

April 2009 JJB completes its first CVA enabling it to shut scores of shops and avoid collapse.

March 2010 Keith Jones, from Dixons Retail, becomes chief executive.

March 2011 Second CVA insolvency. Raises £65m from shareholders

April 2012 Dick's Sporting Goods invests £20m. Adidas provides JJB with a two-stage £15m loan

July 2012 JJB warns of "deterioration in trading" after disappointing Euro 2012 kit sales. Jones quits as chief executive.