Why Mike Ashley’s retail gambles are a mistake | City A.M.
When the fishes swim one way, I swim the other,” said Sports Direct supremo Mike Ashley last year describing his investment strategy. Despite this billionaire bombast, some of his investments are sinking and weighing down Sports Direct at the same time.
The sportswear chain reported a sharp drop in annual profits yesterday, partly because of the £85.4m hit it took on the value of its near-30 per cent stake in struggling retailer Debenhams.
Yesterday also saw Goals Soccer Centres, in which Sports Direct is the biggest shareholder with 18.9 per cent, issue a profit warning blaming the Beast from the East for poor sales.
Sports Direct’s bets on other retailers simply hasn’t paid off. House of Fraser, in which the sports retailer owns an 11 per cent stake, is axing stores and thousands of jobs. Meanwhile, other investments such as French Connection and Game Digital are also struggling.
Read more: Sports Direct boss Mike Ashley keeps faith in the UK high street
That said, Sport Direct’s core business of selling discounted sportswear is robust and smashed analysts’ expectations yesterday. This is no mean feat at a time when it’s raining administrations, store closures and profit warnings on the high street. The numbers prove that if you keep Sports Direct’s strategic investments on one side, it is a phenomenal retailer. And it’s success is no doubt down to Ashley, one of Britain’s best shopkeepers who grew the business from a single shop in Maidenhead into a discount retail empire worth over £2.4bn.
Perhaps Ashley should let Sports Direct do what it does best – sell sportswear. Making it an investment vehicle for swooping on floundering retailers in what is an extremely challenging environment is bound to be testing shareholders’ patience who are watching the retailer’s balance sheet like a hawk.
Sports Direct’s retail gambles are also becoming be an expensive distraction in Ashley’s ambitious vision of making the retailer more upmarket. To compete with rivals such as JD Sports and Decathlon, Ashley has made a hefty investment to replace dozens of old stores with new ones showcasing products from four key suppliers – Nike, Adidas and Puma. The retailer invested £140m in property last year and has earmarked another £300m for this year.
With millions resting on Ashley’s ultimate dream of making Sports Direct the “Selfridges of Sport”, the maverick chief exec should recognise the mistake he’s made in using the firm as a vehicle for risky investments in retail red flags.
Read more: Debenhams has had three profit warnings in a year – could Mike Ashley help?