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JD Sports Fashion remains committed to stores post-Covid – but warns more flexibility may be needed in leases

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JD Sports Fashion remains committed to stores post-Covid – but warns more flexibility may be needed in leases

JD Sports Fashion says it is still committed to operating shops in a post-Covid world, but that keeping a large national retail presence open if social distancing remains a requirement may well depend on getting greater flexibility in store leases.

 

“We have always believed that the retail estate for JD in the UK and Republic of Ireland provides positive benefits in terms of brand awareness, the customer’s desire to see, handle and try the product, and our ability to provide convenience through multiple delivery points,” said JD Sports Fashion executive chairman Peter Cowgill in its full-year results statement. “However, given the clear uncertainty on future levels of footfall, particularly if social distancing remains an ongoing requirement, it is inevitable that maintaining a large nationwide physical retail presence will require greater flexibility in property leases.”

 

He added: “Looking longer term, there is inevitably considerable uncertainty as to what the effect of Covid-19 will be on consumer behaviour and footfall with future store investments highly dependent on rental realism and lease flexibility. Ultimately, however, we remain confident that we have a market leading multichannel proposition which has the necessary flexibility and agility to prosper within a retail environment that may see profound and permanent structural change."

 

His comments came as JD Sports Fashion reporting turning over £6.1bn in the year to February 1. That’s 30% up on the same time last year. Pre-tax profits of £348.5m were 3% up from £339.9m previously. The company said that it saw “very strong consumer demand for JD’s multichannel proposition”. Like-for-like sales growth – which strips out the effect of store, and business, openings and closures – rose by 12% in its JD Sports Fashion fascias in the UK and Republic of Ireland. During the year the retail group also opened 52 new JD shops in Europe, 18 in Asia Pacific and increased its US stores to 11, with a new flagship store due to open later in the summer in Times Square, New York. At year-end, the retailer sold online and from 2,203 stores around the world, including 402 JD Stores and 153 fashion stores in the UK and Republic of Ireland.

 

The Covid-19 effect

JD Sports Fashion said that by March 23, 98% of its shops were closed, including all stores in 14 countries. However it continued to trade online and put in a “very resilient” performance during closures. Shoppers, it said, were “clearly still attracted to JD’s premium multi-branded proposition”.

 

Most of its shops are now trading again and, says the group, footfall has been weaker in malls and shopping centres, particularly in Northern Europe at weekends, because “consumers remain nervous about the risks associated with densely occupied enclosed spaces”. But while footfall is down, those who do shop are more likely to buy and less likely to browse.

 

“Whilst Covid-19 has constrained our short term progress, it is important that we do not lose sight of the core retail standards and commercial disciplines which have underpinned our longer term growth to date,” said Cowgill. “JD has a market leading multichannel proposition which maximises its consumer relevance and reach by creating, and then maintaining, a deep emotional connection with its consumers who see JD as an authoritative and trustworthy source of style and fashion inspiration with influences drawn from both sport and music.

 

"This proposition remains extremely robust and, in that regard, I am pleased to report that it was another year of significant progress for the group with global revenues increasing by 30% to £6,110.8 million (2019: £4,717.8 million) and the headline profit before tax and exceptional items increasing by a further 24% to £438.8 million (2019: £355.2 million). This represented another record result for the group.

 

"We were encouraged by the continued positive trading in the early weeks of the year prior to the emergence of Covid-19 and we firmly believe that we are well placed to regain our previous momentum.”

 

Go Outdoors and Footasylum

JD Sports Fashion has been ordered by the Competition and Markets Authority to sell Footasylum, which it bought in April 2019 for £86m. At the time it had 69 shops and sold online. JD said it was in negotiations with the CMA as to how the divestment process would be run, and is also appealing the decision at the same time. Footasylum continues to operate separately in the meantime.

 

The retailer put its loss-making Go Outdoors into administration in June and then bought it back for £56.5m, occupying shops under licence from the administrator and continuing to employ all its staff on the same terms and conditions. Footfall had not returned to pre-lockdown levels as shoppers preferred to social distance, and more than 90% of Go Outdoors sales take place in-store. The cost of its stores was a particular factor in its operating costs and the decision to go into administration, says JD Sports. It says they have an average lease length of about 10 years with upwards only rent reviews, many fixed above inflation regardless of market rents. It is now renegotiating its leases with “more appropriately” structured leases.

 

JD Sports is a Leading retailer in RXUK Top500 research. Go Outdoors is Top100 and Footasylum is Top50.

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