JD Sports Strategic Management

JD Sports is one of the sporting direct retailers in Britain. (JD, 2012) It is popular in young people. Their stores throughout Britain and a number of stores are located in Ireland, and it sells variety of brands of sporting products and sportswear. There are over 60 different sports brands selling by JD Sports. They are supposed to bring customer best of the best gear from the best of the best brands. (Mission of JD PLC, 2012)

Corporate Society Responsibility (CSR) refers to the responsibility of an organisation’s control towards the benefits and positive effects of the society which provides it the environment and resources to survive and flourish. And it is affected by the oranisation’s actions and policies. (Business Strategy, 3rd Edition) The JD Sports group recognizes that it has a responsibility to ensure its business is implemented in a way which ensures high standards quality of environment and human behavior. There are three aspects concentrated by JD Sports which are the employment across the UK and Ireland, training the staff morale and retentions, and provide equal opportunities to each employee in this organization. (JD, 2012)

External environment

Generally, environment factor can be defined as the natural surroundings that influence the organization operation directly or indirectly. The microenvironment around an organisation immediately, it may affect the business with frequently into some specific parts. This is used to identify competitors. (Business strategy, 2012) Therefore, Porter (1980) applied a framework which used to analysis the nature competition in an industry. He argued that 5 forces determine the nature of competition within an industry.

These 5 forces are including:
* New entrants to the industry
* Substitute products
* The power of customers or buyers
* The power of suppliers to business in the industry
* Rivalry in the industry (Business strategy)
In many cases, some of the 5 forces prove to be ‘Key forces’ and each of the forces affect competition in the industry. In addition, companies speculate strategies in order to respond to the main competitive forces in any industry by different organizational strategies.

The threat of new entrants is high in the fast segment. There is a threat of new entrants is because the entry barriers are very low. The business barriers to entry the market could take those forms: first one is the capital costs, the higher the investment required, the less the threat from new entrants. Secondly, regulation and legal constraints are the main concerned points. In most industries, regulations related to health and safety, products handling, and licenses to operate, export, or install new facilities. And other forms of barriers could be brand loyalty which could be an important factor in increasing the costs for customers of switching products. The new entrants need to change the valuable brand suppliers with its efficient economies of scale to have a reasonable supply chain network or corporate with the low cost producers to supply the products in the market. Also it might gain a large market share in the market as well. For instance, Sports Direct Company reported retail sales were £371m while gross profit increased 9.6 percent to £149m, it driven by the largest UK sports retail. Generally, the retailer industry demands a healthy cash flow to run the day-day business and focus on developing core competencies that can act as an entry barrier.

The threat of substitute products could define as a change in demand when there is a change in the price of the substitutes products. (Business Strategy) There are some aspects directly affect substitute products growth. Firstly, the price of existing enterprise products, and the improvement of the profit potential, will be limited by the users acceptances of products. Secondly, due to the alternative producers, improving the products quality or by reducing the cost to reduce the price and products distinction could be concerned for this company operation. Thirdly, the intensity of competition from alternative producers was the impact of the level of product buyers switching costs. If the user switching costs are lower could produce strong competitive pressures. (Solly, 2009) In the footwear market, there is a price elasticity of demand and a new entrant with a significant change in price can raise the demand of the products. There is a product differentiation with switching parameters. It could attract a large proportion of market volume and eliminate the sales of existing players. Competitors will try to eliminate the threat from substitute products, and improving their products or cut the costs or differentiation. Therefore, specializing the products and core competency protect against substitute would be JD company’s one of the main targets.

The power of buyers is the extent to which the buyers of a product exert power over an industry. The more power buyers could gain a lower transaction price. Currently, the buyer lead the sports retail market to a certain level and cut the prices down. If the buyer power enhanced in a highly competitive retailer with changes in the socio-economic groups, there will be a huge product differentiation increasing. For example the sports wear, jogging shoes, sport- specific shoes and such choice of shoes for customers to choose. It could be said that the power of buyer is intermediate in the market. JD sports noticed that large buyers have less power to negotiate because of few alternatives.

The power of supplier refers to the manufacturer of sportswear like NIKE, ADIDAS, PUMA those are acquired high quality, reputation and value brand all over the world. (Financial Time, 2011) Therefore, supplier could be a price maker. Such as Adidas could sell their raw materials to make football boots to others competitive suppliers because they could dictate the price by stopping supply to those. However, these suppliers became a threat to retailer through acquisitions in to retail business. For instance, NIKE has a partnership with Hargreaves Sports which is exclusive and opened this brand in London in 1999, they sell only NIKE products. Different suppliers will provide different characteristics for inputs that basically do the same effort.

The rivalries among business in the industry become more and more intensive. Especially being advantaged in those fields of low entry barriers, wide range of competitors, maturity market, product goods demand, similar products or services and low switching cost. If a company determined its strengths and weaknesses, the customer must locate the position in the organization. In order to capitalize on the trend, rather than damage expected changes in environment factors. JD needs to focus on the customers’ needs.

Those 5 forces in the rivalries could be a useful tool to help managers to realize the company’s needs and weaknesses. (Solly, 2009) Besides that, those powers could affect the industry rules or take the advantage than other competitors to enhance the market share or competition power. Those factors can be taken into account when assessing industry attractivess.

Performance in the industry

The financial part of JD Sports Company could be judged by the liquidity, current ratio, gearing and profit margin from the current company performance. (Business Strategy) Those data could be collected from the income statement and annual balance sheet. (Appendix 2, 3) Currently, the current ratio is lower than last year by 1.18%. This ratio demonstrates JD Company could pay the short-term debt in time. On the other hand, if this ratio is too high it will cause the capital uselessly thereby decreasing the profit potential. The profit margin has increased 6.37% than last year, which indicates that JD Sports has gained lot of profits through 2012. In addition, the gearing ratio of JD Company in 2012 was higher than 2011, which represents that there was less capital investment in this year it, but also helped JD Sports Company to control financial risks better. JD Sports Company has experienced a boost on sales revenue. It has totally increased by 19.9% in the year to £1059.5 million. (JD annual report, 2012)

Net Revenue is related to the revenue of JD sports in 2012 minus cost goods sold minus sales discounts minus the returns and allowance. It indicated that JD Sports has improved a lot welfare and strategic management. Comparing with last year, the net profit has dropped, but market share still increasing. Which is the financial strength for this company. The market shares issued Through this year the capital expenditure fitting out the Kingsway warehouse decreased the net cash by £25.8million to £60.3 million (2011: £86.1million). The gross capital expenditure increased by £12.7 million to £45.7 million (2011: £33million) This investment of JD group is largely complete and testing of the sortation equipment has been on going for a few weeks. In addition, the liabilities operation rate is the ratio of long-term liabilities, represents the proportion of business capital with long-term liabilities. (Management an introduction, 2011) The gearing ratio for this year was increase by 29.87%. Which is higher than last year, it represents that JD Company’s operation capital increased, then the total asset of JD Company has risen. Overall it performed very well and trying to achieve a bigger market shares.

Competitive strategy

There are three generic strategies were argued by Michel Porter (1980) in the competitive advantages rests on a business selecting and adopting. Generally, these strategies were including three strategies: cost leadership, differentiation, and focus. These helped to modify the 5 forces to earn higher profits than the industry average. (Business Strategy) A cost of leadership strategy is based on a business organizing and managing its value-adding activities to be a lowest cost producer. Globalisation provides the opportunity for high sales and stronger economies than domestic competitors. (Business Strategy) Successful company in cost leadership often acquire with those strengths: Access to the capital required to make a significant investment in production assets, high level of expertise in manufacturing and efficient distribution channels.

In addition, Competitors base a different strategy on effecting customers that the product is the best to offer, the development of a product or service are valued by customers that customer perceive to be better than the competitive products or services. That value added by the uniqueness of the product may be charged from the company. It is not easy to find substitute products, hence it often on the basis of a global brand name. For example, JD sports contained the sport and fashion typified by Adidas Originals. And differentiated itself on this basis. It offers enhanced unique products and provides a high quality service. A focus strategy is aimed at a segment of the market for a product rather than at many markets. This is he global variant of a focus strategy. (Business Strategy) For instance, JD group moved into fashion coincided with its core sports chain, JD becoming to a trend leader. It has acquired variety of retail stores. This retailer has differentiated itself from its two main rivals Sports Direct and JJB Sports to entry a competitive sportswear market. And now focuses on fashion-led leisurewear and street wear. (JD，2012) with the recent years development, JD sports improved the service and products quality also reduced the costs. Through the acquisition and entry global markets, JD Sports Company increased its reputation and made difference from other competitors in the recent few years.

Strategic direction

Strategic decisions are concerned with how the company will be positioned in its product and resource market. There are two types of strategy choices involved in the company’s size, one comes from Igor Ansoff’s (1899) framework and should not confused with Porter’s generic strategies. Another set of decision is mechanism that the company will employ to pursue its generic growth strategy. (Business strategy) Ansoff’s generic growth strategies refer to growth in new or existing markets and products.

The Ansoff’s matrix has divided into 4 sections which are the market penetration, product development, market development and diversification. Market penetration aims to sell exist products to the current customers, concentrate on developing the production market, it was required to expand market share. This will promote and improve the service quality or other way to attract customers to change buying behavior or purchase volume. JD Sports is an existing brand with existing products, it protected the strengths and gained market share in recent years. It has expanded its business area into fashion, outdoor, distribution to attract different field customer.

Market development is based on join new markets or fresh segments of existing markets while employing existing products. (Business Strategy) generally speaking, due to provide existing product to expand new markets. The company must concentrate on the customers in different markets with similar demands. The productions and sell method might be changed but the main technology will be the same. JD Sports Company expanded the scale of market, entered into new markets and using existing products and brands all over the world countries. But JD faced a lot of problems potential, such as culture and language. Enter new markets with existing product may require the development of new competences that serve the particular needs of customers in these markets. That would lead the risk growth. The major risk for JD Sports might be the limited experience on sells global. New markets were good new user. JD Sports need further research in consumer needs.

Product development concentrated on the development of new products for existing markets. (Business Strategy) providing new products to the current customers, based on the relationship between the retailer and customers, it would be easily update the production with a short period. JD Sports aims to attract new consumers, retain existing ones and increasing market share. Acquisition is the main strategic of JD Sports products development, and it has acquired some big brands such as Blacks Leisure, Chausports and so on. Obviously, JD Sports need to seek information for the brands which it want to acquired potential. This method is positively help JD Sports reduce the competitors in the industry. And it is easier to takeover an existing store than re-start a new one.

Diversification is business growth through new products and new markets. It is an appropriate option when current markets are saturated or when products are reaching the end of the life cycle. (Business Strategy) most of the successful industries were focused on the market selling or technology update,. Otherwise the risk of diversification failed will be very high. JD Sports has acquired the Sprinter while entry into Spain market, Sprinter which is the leader of sporting brand in that country. In 2012, JD Sports acquired Black with the entry the outdoors market. This information indicated that JD Sports has expanded a business’s existing supply chain, which could reduce the risk into new market with the existing competences. JD Sports through into global market and acquisition of international business which faced a lot external factors. The tariff barriers in each country were different. The exchange rate, distribution and the cost of trade such as the route charge, the cots of sells in European Union are cheaper than Asian’s. (European commission) The Ansoff’s model that used for analyzing strategic directions that is truly helpful in the industry.

Methods of Development

The organic growth or internal growth is the most straightforward mechanism of business Growth. (Business Strategy) Internal growth through reinvestment of the profits of a few years ago and loan capital profit expansion in the industry. This results in increased capacity. Increase employment opportunities, the increase in turnover. Its advantages are: low-risk, in the existing areas of expertise, and avoid high-risk alternative mechanism for increasing the cost such as debt service. The disadvantages are: faster than external growth, small-scale diversified, and relies on existing business management skills. Most companies are using the internal growth as main growth. Inorganic growth refers to business growth occurs for reasons than normal activities of a company. It is not generated by increase sleds of revenue or cut cost. Inorganic growth took place when merger or acquisition of other business as an overall expansion. For example, Last 20 years ago, JD Sports used organic growth to expand their business which showed that it generated by building sales revenues through increasing its network of store. However, They established use acquisition method since 2002 by brought the brands named First Sport. In 2012, JD Sports acquired he Black Leisure to expand their market size. (BBC, 2012)

There are several processes connect with the inorganic growth method. Firstly in a merger, the shareholders combined together in the organisation. Will share the resource of the merged organsation. For example, T-Mobile and Orange telecommunication company merger. (BBC, 2009) Secondly, and acquisition is joining of unequal partners with one organization buying another one. Such as JD sports acquired Blacks. (BBC, 2012) Moreover, a takeover is same as an acquisition but the term is the approach of larger company acquiring small target company.

For instance, high street beauty French retailer body shop was takeover by L’Oreal. (BBC, 2006) Lastly, a hostile takeover represents an offer for the shares of a target limited company which the target’s directors reject. There are several disadvantages about acquisition and merger methods. It could be highly cost for it capital such as it is bought the whole brand which has already in in market. JD sports cost £20 million acquired the Blacks Leisure. It could cause high risk of market value to the company. Moreover, according to the financial problems about Black store, JD experienced a lost of profits. Finally, it is difficult in the culture integration of the merger firms, especially different between Asia and EU business. On the other positive side, acquisition could help company enter target market easily. And it benefits for reducing the rivals in the strong competition market.

SPACE Matrix analysis

The space matrix demonstrates that the company should take an aggressive approach to further growth. (Appendix 4) Generally, space matrix is a tool used to analysis a company operation. JD Sports Company has a strong competitive position it the market with rapid growth. JD Sports needs to keep improving all the products or services, due to large of external environment factors, JD Sports shall grow rapidly and acquisitions strategy could be an idea method to achieve that. On the other hand, JD Sports should avoid anti competition campaigns as large companies attract the attention of regulatory bodies easier.

Conclusion

This report analysis the JD Sports company main functions. How it run with the business with external factors. JD Sports Company is the second largest retailer in the UK, and it has performed very well in the recent 5years. It gains a strong market share and expanding scale of the market year after year. Therefore, JD Sports is developing on the right track. However, it has experienced a profit loss by acquisitions of Black in 2012. This report discussed JD Sport’s strategy of growth by applying Ansoff’s matrix and the generic strategies and external growth methods. It was expected to establish more retail store by acquisition methods. Which could be a significant advantage to compete with other rivals.

Recommendation

JD Sports should continue to use acquisitions methods but need to pay attention with the competition appearing from other markets. As it has much experiences about acquisition of sports brand retails. Therefore, this is a good chance to expand the scale of the market into the European areas. After gained relatively market shares. It might approach to internationalization.

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