Definitely one of the companies I like to watch from the outside.
Earlier in the year I did a write up that included Sports Direct.
To ruin the punchline it was The Night King I ended up comparing Mr Ashley to.
Buying up the high street and converting them into low margin high volume offerings has a number of drawbacks. If you think about the structure of your local high street you’ll commonly get groupings of stores next to each other. Grouped by theme or target customer.
Different stores have different catchment zones, e.g. John Lewis is well known for bringing in a range of middle class shoppers from all over. It’s an attraction you will travel for. Versus a store like Sports Direct which you generally won’t travel for but it’ll be in the area you are shopping.
Sports Direct Group buy up high street chains and convert their merchandise into lower margin high volume stock. I’m not sure that strategy works for every store, I doubt they’ll lose any massive amounts of money but they are bleeding acquisitions dry. My big concern is they will damage the high street for themselves through this aggressive strategy of converting the high street into different flavours of Sports Direct.
Variety is the spice of life, but that can be expensive. I suspect this blanket strategy works well for Sports Direct but will suck the life out of their acquired businesses.
Fundamentally the group has a lot of risks but the biggest issues come down to leadership, culture, and governance. Which are difficult items to quantify.
I’m not sure the longevity of their business strategy, buying up dying stores, stripping them for what they are worth, using them as additional outlets for existing product lines. That said I don’t see them vanishing anytime soon, though I expect them to be forced to shrink in the future and sell off poorly performing assets.