2023-05-28 15:45:04
Now the founding family, the Segarras, and the Portuguese Sonae have decided to ‘divorce’ from the multinational JD Sports. This decision will force the British firm to buy the entire group or sell its participation to them.
QUESTION (Q.) During the covid pandemic there was a boom in sales of sports products. Has this market growth been consolidated?
-Ángel Segarra (AS): The reality is that the sports sector is quite resilient, as was already seen in the 2008 crisis, when there were activities that fell at double-digit rates, while the strongest decrease experienced by the sports sector was 2%. When the covid pandemic arrived, we already had a growth trend thanks to the change in habits towards a healthier lifestyle and, indeed, there was a boom. Part of these changes have been consolidated and even continue to grow. In fact, last year’s figures for the sector were good and the outlook for this year is also positive.
Q. What permanent changes have you detected?
A. S.: Mainly, sports practice. We were almost 20 points below the European average and we are already at rates very similar to those of northern European countries. And by using more sports clothes and shoes, people have realized that it is more comfortable than the casual one that we had been wearing until recently and that has been transferred as part of fashion. The ISRG group as a whole, the joint venture they have with Sonae and JD for the Iberian market and which includes other chains, had a turnover of 1,257 million last year, with a growth of 40.7%. What weight does Sprinter have in those figures?
A. S.: We divide the business into two models. The first would be what we call sporting goods, which is where Sprinter, Sport Zone, Depovillage, Bodytone and a chain that we acquired in 2021 in the Netherlands are included. All of that would be the same business model. And then there is the sports fashion model, which is led by the JD banner. And in this turnover of almost 1,300 million euros, 70% of the business is represented by sporting goods and the remaining 30% is JD. Last year they finished with 205 stores, after opening 16 establishments.
Q: What plans do you have for this year?
A. S.: The intention is to open around 15 stores this year. Not only in Spain, but also in the Netherlands, where in fact we have already opened one. It will be around 11 million euros of investment. In the Netherlands they have just landed.
Q: What projects do you have there?
David Segarra (DS): In the Netherlands we acquired a company that operates with two labels, Aktie and Perry, which is approximately 60 stores, and the idea is to change the label of all of them starting in September. In fact, the new openings we have had in The Hague, Tilburg and Amsterdam have already been like Sprinter.
Q. Do you notice many differences between Spain, Portugal and the Netherlands in terms of clientele tastes?
D. S.: With Portugal there are fewer differences, but in the Nordic countries the climate conditions a lot. They are also slightly more premium products, because there they have a higher purchasing power, the average ticket is higher and the share of private label products is lower.
Q. How much could the difference be in that average cost?
D. S.: 40%, more or less as the salary difference.
Q. Beyond the Netherlands, do you plan to tackle any other markets with the Sprinter banner?
A. S.: Right now, the focus is on consolidating the operation in the Netherlands and, when that comes, we obviously have plans to go out and be a relevant operator at a European level.
Q. You have just opened your first megastore in Alcorcón, a 3,000-square-meter establishment that even includes an athletics track. Is it a way to compete with the Decathlon model?
A. S.: Well, it is true that Decathlon is a competitor, but the value proposition is completely different and at the same time I would say complementary. They bet a lot on their own brand and we bet on international brands. We have very good agreements with major sports brands, such as Nike, Adidas, Puma, Reebok, Fila and many more. What the Alcorcón store wants is to reflect the maximum exponent of our value proposition, with a wide range, a connected establishment, with more digital commitment and more experiences. In all sections you have the possibility to test the product. We have what we call the court, where you can try on football boots; a paddle and tennis racket test; You can also test the cushioning of the shoes, the fitness product… We also have a space that we call the laboratory, which is used to measure which running shoes are best suited to your needs and, with an application, recommend them to you. In other words, there is a very powerful combination of experiences, service, product and technology within the store. This evolution towards more experiential establishments is taking place in all physical commerce. Is it necessary so that people do not stay at home buying on the internet?
D. S.: Well, what is sought is that, when the consumer gets in the car and goes to look for a physical space, that it has elements that go beyond the purely transactional aspect of going to buy some shoes or clothes. What we want is for you to have a total experience and understand that you are buying the product you need and can try it. And as for the comparison with Decathlon, we respect them a lot, but they have about 60 different sports and we have wanted to specialize in soccer, running, fitness, basketball, tennis… In other words, focus on fewer sports, but do it really well .
“Now more than one sport is practiced”
Q. How are you tackling the problem of inflation?
A. S.: We have tried to contain price increases as much as possible, but there have been products in which it has not been possible because we are talking about increases at source of 40% and 50%.
Q. What is the customer reaction?
A. S.: At the moment, the evolution of the indicators is not bad. Last year was a historic year for us, growing at double-digit rates, and this first quarter hasn’t been bad either. But we are attentive to what happens.
Q. Do you still see a path to the sector? Do you see possibilities for the sports market to continue expanding?
A. S.: Making forecasts, especially in times of uncertainty, is complicated. But yes, we see him travel. It is no longer a matter of whether or not to practice sports, what we see now is that more than one sport is practiced. Before there was the football fan or the one who did running. But now the one who runs has realized that he needs to do fitness or Pilates to improve times or recover sooner. That is the main trend we see right now.
P. Sprinter is part of ISRG, which also manages other brands. How do the different brands coexist within the group?
D. S.: As Ángel explained, JD is sports fashion that is aimed at kids between the ages of 15 and 25, whose main asset is the mobile phone they carry, how they dress and the video they upload to TikTok or Instagram. Kids who want to have that sports-inspired look, often linked to music or sports icons. And in our case it is a more functional product, more linked to sports practice and with a family audience, with a slightly higher age position. These two models coexist perfectly. In fact, we have close to 50 locations in Spain where we are practically wall to wall and there are times when we take an entire building, split it in two and we are both banners. And then the Sport Zone part is sporting goods. Although the label is different, the value proposition is exactly the same.
Q. It is inevitable to ask about the activation of that clause that Balaiko (Segarra family) and Sonae have launched so that JD buys their stake or sells theirs to them. What has led you to this situation?
A. S.: We can’t talk much about this subject because there are confidentiality clauses, but the notes that Sonae and JD sent make it clear. There is a difference regarding the strategy of how the ISRG group is going to work from now on. A difference between JD, on the one hand, and Sonae and Balaiko, on the other.
Q. But when you talk about strategy, what are you referring to?
A. S.: The word strategy is very broad and implies many things, there is no specific point. When you define a strategy, one has a vision, another has another, and if the two visions do not match, you have to find a way to solve it.
Q. The problem was that JD wanted to strengthen his brand more and you want him to bet on Sprinter?
A. S.: Well, the JD group has already gone on the market announcing its general strategy and it is true that it has a greater focus on the JD brand, because it is obviously the largest of its group globally. But that is not the only point, there is more within the strategy that, in our opinion, may impact the growth of ISRG in the future and we have made this decision. There are many points within the group’s strategy in which we do not have the same vision and, when you do not have the same focus, in the end that impacts the company’s performance. And that’s what we don’t want, neither we nor JD.
Q. What will happen from now on?
D. S.: On a day-to-day basis, it will really change little, because it is a shareholder issue and it is what we wanted to convey. It was inevitable that there would be some uncertainty in the teams, but it lasted 24 hours. People are aware that the management will continue, regardless of who the shareholder is. In fact, this was a family business, and when JD came in, the day-to-day changed little. What changed was the ambition in the growth and development of the company. Currently, what there is is the same management model, which operates the two brands, and now it is time for JD to decide if he wants to buy or sell.
Q. Is there the option of segregating the management of the two brands?
D. S.: What is being considered are two alternatives: either that JD buy the entire shareholding and all the integrated companies continue, or that Balaiko and Sonae recover all ISRG except JD Sports, because JD would always recover the JD brand. In other words, ISRG would become the same as it is today, but without the JD stores. With which the part of sporting goods would continue to operate with the same banners and with the same ambition for growth and development at a European level.
Q. If JD decides to keep it all, what will you guys do?
D. S.: Think for a while. But come on, we like marching and we have the DNA of our parents, who are very entrepreneurial. And, in fact, activating this clause does not have an economic motivation, but a motivation to continue growing and betting on business development.
Q. From what you say, what you want is for JD to sell you his share and you to continue running the business.
A. S.: The Sprinter project was created by our parents, we fully trust it, we have been developing it for a long time and we fully trust the capabilities and the team behind it. The answer I think is obvious. When someone activates a clause of this type, with the economic gamble that it entails, I think the answer is clear and that is that we would like to continue, obviously.
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