The John David Group plc

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The John David Group plc

Hollinsbrook Way
Pilsworth
Bury, BL9 8RR
United Kingdom
Telephone: (44 0161) 767 1000
Fax: (44 0161) 767 1001
Web site: http://www.jdsports.co.uk

Public Company
Incorporated: 1981
Employees: 8,623
Sales: £530.58 million ($1.01 billion) (2007)
Stock Exchanges: London
Ticker Symbol: JD
NAIC: 448110 Men's Clothing Stores; 448120 Women's Clothing Stores; 448130 Children's and Infants' Clothing Stores

The John David Group helped pioneer the sports fashion trend in the United Kingdom and remains one of that country's leading sports and casual wear retailers. The company is more commonly known for its flagship JD Sports store chain, which operates more than 360 stores throughout the United Kingdom, with a total sales area of nearly 1.1 million square feet. This total includes 14 airport locations, acquired from Hargreaves in 2006. The JD Sports shops feature a full range of sports-oriented clothing, including a wide selection of branded sports fashions from such companies as Nike, Reebok, and adidas. The JD Sports chain accounts for more than 93 percent of the company's total revenues. The remainder comes from John David's small casual wear "Fashions" division, which operates 44 retail stores. Together, these operations generated £530 million ($1.1 billion) in revenues in 2006. A public company since 1996, John David Group is nonetheless controlled by Pentland Group plc, which holds 57 percent of John David and also owns such sports and leisure brands as Speedo, Kickers, Lacoste, and Timberland. John David is led by Chairman Peter Cowgill and CEO Barry Bown.

FOUNDING A SPORTS FASHION PIONEER IN 1981

Born in 1944, John Wardle was on his third career when he founded the John David Group in 1981. In his early 20s, Wardle had joined the Manchester fire department. From there, Wardle went on to become a civil servant attached to the Ministry of Defense. Yet Wardle was also an avid sports fan, and in the 1960s had attempted a career as a professional soccer player, playing for Bolton. When an injury ended his professional career hopes, Wardle turned to coaching, becoming an assistant coach for Radcliffe Borough in the 1970s.

By the end of that decade, Wardle had begun to develop plans to open a sporting goods store. Joining Wardle in that business was David Makin, just 18 years old at the time and the son of one of Wardle's close friends. Backed by funding from both Wardle's and Makin's families, the partners opened their first store in Mossley, Bury, that year. Makin and Wardle called their first store Mossley Sports.

Makin soon spotted a new trend among British youth. The arrival of hip-hop music from the United States had brought with it that music scene's penchant for sports-oriented branded fashions. Makin quickly recognized the potential of this new sports fashion trend in the United Kingdom, and convinced Wardle to shift the store's stock emphasis to the new market. Makin's intuition proved correct, and by 1983 the company began its expansion, opening its first store in Manchester, in Arndale Centre. For this, the partners created a new name, JD Sports.

By the mid-1980s, sports equipment had more or less vanished from the JD Sports stores. Instead, the company's sports fashions range benefited from the rapid expansion of the branded sports clothing market, as such brands as Nike, adidas, Reebok, and Puma succeeded in transforming consumers into walking billboards across the United Kingdom. Backed by the new fashion trend, JD Sports opened new stores in Liverpool and Sheffield into the middle of the decade.

Wardle and Makin initially focused on expanding their retail chain in the Northern and Midlands markets, leaving other British markets to fast-growing rivals including the First Sports chain operated by the Blacks Leisure group and JJB Sports. Into the early 1990s, however, JD Sports began its expansion into the United Kingdom's most heavily populated southern markets, especially the all-important London market. The company opened its first London store on Oxford Street in 1989.

PUBLIC OFFERING IN 1996

The first half of the 1990s provided more strong growth for the company as the sports fashion trend emerged beyond the youth market to become a dominant fashion trend among all consumer segments. The company's early entry into the market in the meantime had given it a strong relationship with many of the major names in the sector, allowing the company to remain at the leading edge of new clothing and footwear designs and fashions. Wardle and Makin launched a new expansion phase for the company, scouting out new locations and raising the company's total store portfolio to 50 stores by 1995. By 1996, the company had topped 60 stores, with total sales of £56.4 million.

While JD Sports grew strongly, it continued to face heavy competition not only from other major sports fashion specialists, but also from the larger retail sector as more and more retailers added branded and other sports fashions to their product mix. In order to remain competitive, the company developed a new expansion plan, aimed at doubling the number of its stores by the end of the decade. In order to fund this effort, the company went public in 1996, listing its shares on the London Stock Exchange. The floatation valued the company, by this time called John David Sports plc, at nearly £133 million. Wardle and Makin each sold 15 percent of their 50 percent stakes, sharing a total of £26 million. The cash enabled the partners to buy up control of the Manchester City football club.

The public offering also provided the backing for JD Sports' new expansion drive. By the end of the decade, the company had more than doubled its number of stores. The period was not without its mishaps, however. The IRA terrorist campaign of the mid-1990s directly affected the company, when two of its Manchester stores were destroyed by bombs, costing the company some £650,000. The 1998 year proved disastrous in its own way, after the company's attempt to steer its product mix toward a more mainstream consumer segment failed to capture customers' interests. By then, the company's share price had slipped dramatically.

COMPANY PERSPECTIVES

JD Culture. We inspire our people to reach for higher levels of performance. To achieve these standards we only recruit the best. All employees are highly skilled, self motivated and in constant pursuit of perfection. Opportunities to progress arise quickly for those people with the right qualities and ambition.

The company quickly recognized its mistake, as a company spokesman told the Scotsman: "The problem was that we temporarily lost sight of current trends and became too mainstream." Into 1999, the company worked to correct its product mix, redeveloping its line of exclusive designs in partnership with its major brands. The effort also saw the company shift its focus from the purely sports-oriented market represented by adidas and Nike to include the fast-growing leisure brand segment, represented by such brands as Lacoste, Thomas Burberry, and Fred Perry. In this way, the company, which opened its 126th store by the end of its 1999 fiscal year, once again posted sales gains as turnover neared £143 million. The company also gained control of its own clothing line, with the purchase of the Cobra brand in 2000. In that year, the company, which had gone through a number of management shakeups in the late 1990s, appointed Barry Bown, who had joined the company in 1984, as its chief executive. Nonetheless, both Wardle and Makin remained highly active in the group's day-to-day operations.

NEW OWNER IN 2005

Into the 2000s, JD Sports appeared to have found the proper product mix, as its yearly revenues surged past £200 million in 2001. The company had also continued to develop its retail network, boosting its total number of stores to 149. With profits climbing past £16 million for the year, the company's share price reflected the company's newfound retail strength. This resurgence prompted founders Wardle and Makin to cash in on part of their investment, with each selling approximately a 7 percent stake.

JD Sports continued to play catch up to the market's leader, JJB Sports. The company began shifting its stores toward larger locations, in order to expand its range of branded clothing. At the same time, JD Sports began preparing its first major acquisition, that of Blacks Leisure's First Sports chain. That operation had attempted to become independent in a management buyout in 2001, but the effort had failed. Instead, Blacks Leisure agreed to sell the group's sports and leisure division, including 182 First Sports stores, as well as the upmarket Active Venture and Pure Woman retail formats, for £53 million.

JD Sports at first intended to maintain much the First Sports chain and name, while adding parts of the JD Sports product mix to the new chain. Yet difficulties integrating the two operations soon caught up with the company; the company was also faced with a degree of cannibalization from the First Sports stores located in close proximity to its JD Sports stores. By 2003, the company was forced to change its plans, converting more than 100 First Sports stores to the JD Sports name, while beginning to sell its less attractive sites.

If the First Sports acquisition had succeeded in eliminating one of JD Sports' major rivals, it also eliminated the company's own profitability. By May 2003, the company had posted its first losses since its public offering. The loss led Wardle to agree to step down as the company's executive chairman. By the beginning of 2004, both Wardle and Makin had agreed to step down from management positions in the company they had founded. Soon after, Wardle sold another 11.5 percent of his stake to the Pentland Group, which had built up a strong portfolio of sports and leisure brands, including Speedo, Timberland, Kickers, and Lacoste. The executive chairman spot was then filled by Peter Cowgill, who had served as the company's finance director until 2001.

By then, John David Sports had changed its name, to the John David Group, as part of a restructuring of operations. While sports and leisure remained the company's core retail focus, through its flagship JD Sports chain, the John David Group had also begun to eye an expansion into the larger fashion market. As part of that process, the company established a separate division for its struggling retail fashion stores, which included the Open, Size?, and Athleisure names. The company then set out to shore up the division, buying the 23-store chain of RD Scott stores, for £4 million. Apart from beefing up the fashion division, the purchase also gave the company access to the range of brand names featured in the RD Scott stores, including Ted Baker, Firetrap, Rockport, and Henri Lloyd. Nonetheless, as Cowgill told the Financial Times, "If it [the fashion division] doesn't perform, then like any loss-making area of the business, we would seek to dispose of it."

KEY DATES

1981:: John Wardle and David Makin open first store in Bury, England.
1996:: With 61 stores, JD Sports goes public with listing on London Stock Exchange.
2002:: JD Sports acquires more than 200 stores, including 182 First Sport stores, from Blacks Leisure.
2005:: Wardle and Makin sell remaining shares to Pentland Group, which holds 57 percent of company's shares; 182 Allsports stores (ultimately reduced to 73 stores) are acquired.
2006:: Company acquires 14 airport-based retail locations from Hargreaves (Sports) Ltd.

Wardle and Makin completed their exit from the John David Group in May 2005 when they agreed to sell their remaining stakes in the company to the Pentland Group. In this way, Pentland, which paid nearly £45 million, boosted its stake in the company to 57 percent. The purchase price reflected the pall cast over much of the British clothing retail sector at mid-decade. Indeed, the difficult trading period had hit John David's rivals just as hard. By the end of 2005, one of the group's larger rivals, Allsports, had been forced to declare bankruptcy. Allsports had been the sector's fourth largest player, with 270 stores throughout the United Kingdom.

MARKET LEADER FOR THE NEW CENTURY

The collapse of Allsports provided John David with its next expansion opportunity. In November 2005, the company launched a £18 million takeover offer for 178 of the Allsports stores. Under the purchase agreement, John David was given the right to operate the Allsports stores for a trial period before completing the individual purchases of each site. In this way, the company was able to identify the locations with the greatest potential for profitability. By February 2006, the company's review resulted in the agreement to take over just 91 of the Allsports locations. These were subsequently whittled down to just 73 stores. Because the Allsports stores were typically smaller than the JD Sports stores, the company initially intended to maintain the Allsports brand. By May of that year, however, the company decided to go ahead with a rebranding of the locations under the JD format. That process was completed by early 2007.

By then, John David had targeted a new sector for expansion, that of the airport market. In June 2006, the company acquired 14 airport-based retail locations from Hargreaves (Sports) Limited. Yet new airport security rules enacted in August of that year severely cut into traffic at the Hargreaves stores. Nonetheless, John David remained optimistic about the new operations, and unveiled plans to bid for new locations in other airports throughout the United Kingdom.

The move into the United Kingdom's airports came as the John David Group appeared to be shifting toward an exit from the fashion retail sector. In 2007, the company split off its fashion division into an autonomous company, with its own management and inventory. This move came as the company's core sports and leisure business, which accounted for 93 percent of its sales, gained strongly as the company completed its 2006 fiscal year. With total sales topping £530 million, and pretax profits rising to £25 million, John David Group appeared to have hit upon the formula for success in the United Kingdom's competitive retail market.

M. L. Cohen

PRINCIPAL SUBSIDIARIES

Allsports Retail Ltd.; Allsports.co.uk Ltd.; Athleisure Ltd.; First Sport Ltd.; JD Sports Ltd.; Jog Shop Ltd.; RD Scott Ltd.; The Sports Shop (Fife) Ltd.

PRINCIPAL COMPETITORS

NEXT plc; Arcadia Group Ltd; JJB Sports plc; Burberry Group plc; Top Shop/Top Man Ltd.; River Island Clothing Company Ltd.; The Peacock Group plc; Lewis Trust Group Ltd.; Mothercare plc; H and M Hennes Ltd.; Alexon Group plc; Blacks Leisure Group plc; French Connection Group plc.