Dec 19, 2014
Europe beware! Ashley's
Sports Direct is spoiling for a fight
Dec 19, 2014
LONDON, United Kingdom - "If you don't want to play, we'll come to your country and smash you to bits," Mike Ashley, the billionaire founder of British retailer Sports Direct said earlier this year.
That's not the language you'd expect from a business leader laying out plans to expand across Europe.
But from a man who turned a 10,000 pound ($15,600) loan from his parents into Britain's biggest sporting goods chain -- buying a soccer club and stakes in major competitors along the way -- it is not to be taken lightly.
Ashley, and many analysts, believe Sports Direct's model of cut-price offers on top brands such as Nike and Adidas, subsidised by high-margin sales of own-brands including Dunlop and Slazenger, can be replicated across continental Europe.
That could spell bad news for the big sporting goods chains there, such as France's Decathlon.
"Sports Direct is incredibly focused on the European story," Trevor Green, head of UK institutional funds at Aviva Investors, the company's sixth-biggest shareholder, told Reuters.
Ashley's unconventional style -- he's usually dressed in jeans and a white shirt and makes clear his reluctance to explain his decisions -- has unsurprisingly attracted critics: Not least in 2007, when Sports Direct shares floated at 300 pence apiece, netting Ashley around 900 million pounds, only to plunge to 31 pence less than two years later.
The stock has since bounced back to more than double its debut price, however, far outperforming the UK benchmark FTSE-100 index, and helping to win over many doubters.
"In terms of retail, he's got control of that sector in his own way, in his own style ... and clearly proven that he's done a very good job of it," Topshop owner Philip Green, Ashley's equally abrasive entrepreneurial friend, told Reuters.
Having seen off competitors such as the once-mighty JJB Sports in Britain, Sports Direct now has 434 stores at home, as well as 270 more in 19 countries across mainland Europe.
But it lacks the scale to take on a pan-European industry about eight times the size of Britain's 5-6 billion pounds a year sporting goods market, and has said it could do takeovers.
Analysts have tipped Dutch rival USG and Exisport in Slovakia as potential targets.
Ashley's not just interested in acquisitions, though. The 50-year-old, who owns English soccer club Newcastle United despite the misgivings of many fans, has a track record of using Sports Direct to take stakes in rivals -- a move that blurs the lines between strategic investor and activist hedge fund.
"For a public company it's totally unconventional, and that's what he is," said a banker familiar with Ashley, whose 57.7 percent Sports Direct stake is worth 2.3 billion pounds.
"But if you invest in this business you should go in with your eyes open. If investors complain -- well I'm sorry, but Mike Ashley was there when you bought the shares."
Over the years, Sports Direct has held stakes in companies such as Finland's Amer Sports, JJB Sports, kit maker Umbro, and Adidas -- the latter two raising its profile with two key suppliers, before being sold for big profits.
It currently has a near 12 percent holding in its main British rival JD Sports, as well as investments in departments stores House of Fraser and Debenhams, online retailer MySale, and even Britain's biggest retailer Tesco.
Sometimes it's because Ashley has seen an opportunity to make money, and sometimes it's because he hopes to influence or cooperate with a rival. But usually it's all of these.
In January, for example, Sports Direct sold a stake in Debenhams it had bought days earlier, making a profit of about 4.6 million pounds. It then replaced that with derivatives deals which tie up less capital but still give it an influence.
Since then, Sports Direct has opened four concessions in Debenhams stores, securing a platform to sell top-end products of key brands such as Adidas, Nike and Puma that are unlikely to be distributed to its own shops until later.
"In the majority of cases over the years we have found that taking those stakes has helped rather than hindered the developing of a relationship and that's why we do them," Sports Direct chief executive Dave Forsey told Reuters.
"I don't want to take any credit for the visions that come along, primarily they will be ones that he (Ashley) has spent time puzzling out," added Forsey, who joined Sports Direct as a Saturday boy in 1984 and now oversees the day-to-day running of the business, while Ashley focuses on strategy.
At Tesco, where Sports Direct has a 0.3 percent interest via another derivatives deal, it leases unused space in 11 UK stores as well as eight in mainland Europe and four in Malaysia.
It has done the same with furniture chain IKEA in central Europe, and more such deals could be on the cards, with big European retailers such as Germany's Metro and France's Carrefour looking to address underused space.
Not all of Ashley's bets have paid off. In 2008, he was reported to have personally lost up to 300 million pounds by backing shares in HBOS before the British bank collapsed.
But that hasn't deterred him.
"It's about putting shops down in a few places and seeing who wants to play ... That's the message we'll be putting out in Europe," Ashley told analysts in July. And if rivals don't want to play, they can't say they haven't been warned.
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