Sports Direct Business Strategy
This essay will be about analysing the business environment of Sports Direct and assessing the impact on the company’s business or corporate strategy. This will be done by looking at the company’s strategy, the macro environment which affects them, the industry they’re in and their internal environment with aid from business theories and analysis forms such as SWOT and PESTEL.
To begin some information on Sports Direct, Sports Direct was founded in 1982 by Mike Ashley as a single store in Maidenhead. They now a public limited company which operates in twenty different countries, employ approximately 26,500 people and being the biggest UK retailer in terms of turnover, which is £3359.5 million. Sports Direct is a retailer in sporting goods and clothes, fitness, lifestyle and fashion. They sell own brand goods as well as brands such as Nike and Puma through physical stores and through E-commerce. Sports Direct operate in five business segments. These being the UK sports retail, European sports retail, premium lifestyle, rest of the world retail and wholesale and licensing, with the UK sports retail segment being the core segment. The business’s values are treating all people with respect and dignity, having good practices in corporate dealings and giving shareholders good value in the long term. (Sports Direct PLC ,2018)
Sports direct will have different strategies for the different segments of the business however in this section the focus will be on the core segment which is sports retailing.
The generic strategy for Sport direct would be a cost leadership approach to gain a competitive advantage over their competitors. The generic strategies are too broad, so the strategy clock theory would give a better look at their pricing strategy and what it means. According to Shakhshir the strategy clock is positioning strategy based on the principle of achieving competitive advantage by providing customers with what they want, or need, better or more effectively than competitors”. On the clock Sports Direct’s strategy would most likely be at the low price and relatively low on the perceived product benefits. This is because the strategy for Sports Direct is selling at a low price. They also use some psychological factors in their pricing by giving large discounts on many of their propositions, this is a key component in their strategy. This strategy works well for Sports Direct especially in recessions. They also promote closing-down sales of stores very well to make the customer feel like they are getting a better deal. (Telegraph,2015) this links to the concept of the marketing mix or the “4P’s” this paragraph has covered “2P’s”, promotion and price.
A current strategy of Sports Direct is to widen distribution channels and improve their online presence via social media and website and store layouts this is their elevation strategy. This focuses on improve the places people can buy their products and how they contact the potential customers. The remaining “P” of the marketing mix is product and Sports Direct’s strategy when it comes to product is to have a large range of quality products and brands to give the consumer the greatest amount of choice. (Sports Direct PLC,2018)
The macro environment for a company can be analysed by a PESTLE analysis. This looks at the political, economic, social, technological, legal and environmental factors which affect the company. Pestle should be carried out in order to help identify future problems and help to make a strategy for them. (Warner,2010)
Political factors are how the business and the government interact with each other. This is closely linked with legal factors as it’s the government which passes these laws. (Warner,2010) A major political factor for sports direct is the working conditions at Sports Direct.
Examples of their poor working conditions include paying staff below minimum wage and penalising them for basic human rights like having a short water break. (The House of Commons, 2016) Controversial zero-hour contracts are opposed by some political parties such as labour this would have a drastic effect on sports direct as they have many workers on zero-hour contracts. Economic factors are which affect the revenue or costs to a business. (Warner,2010) This can be increases in the wage of workers or cost of supplies. For Sports Direct the increase in the minimum wage of 4.4% which was introduced in April 2018 could damage their low pricing strategy as they would need to put prices up to balance out the additional costs they have incurred. (gov.uk,2018)
Social factors are about how the demographics is a changing. This can be in terms of income, age or lifestyle choices, linking this to sports direct there is a positive outlook in the sporting goods industry as people are becoming more involved in being healthy. (MarketLine,2018) This could be exploited by sports direct if they have a strategy and know about it. Technological factors are about the changes in processes and technology in the industry. (Warner ,2010) An example of this is the ever-growing online presence of companies. This is pushing physical stores out of the industry as online sales continue to grow. The final part of pestle is the environment factors. This looks at how the company affects the environment. Sports Direct are trying to be environmentally friendly they are doing this by having introduced bags for life in their stores and newer stores are equipped with a smart meter. (Sports Direct PLC, 2018)
By using the theory of strategic position and porters five forces this section will analyse the industry environment. Sports direct mainly operate in the sports retailing market and compete with the like of JD sports.
Now porters five forces. This strategic model looks at analysing the current situation as well as potential future situations. The model is broken down into 5 sections, these are bargaining power of suppliers/ customers, threat of substitutes/ entrances and current competition.
The bargaining power of suppliers can have a negative impact on the profit margins for sports direct by charging more for their materials. Therefore, sports direct need to build strong relations with suppliers and having multiple suppliers available. The bargaining of customers is another threat, this is because they put pressure on sports direct to have the lowest price available to them. sport direct have countered this by appealing to the mass market which decreases this pressure on them.
The threat of substitutes, this is when new or similar product or service comes to market. the problem for sport direct is that they would have to compete with this new firm potentially losing revenue. The ways they can be dealing with this is by building a good reputation and service. The threat of new entrants can do a similar thing to substitutes as sports direct would have compete with more businesses. For sports direct they can create barriers to entry such as economies of scale to prevent businesses entering the market. Sports Direct’s size is a barrier to entry because of the amount of economies to scale they can exploit.
The final force is the existing competition in the market. in the retail market this is a very competitive market. this means sports direct will have to share profits with many other businesses. This level of competition means that Sports direct will have constructed a strategy to make them stand out, this is their discounting strategy. (Fern Fort University,2018)
By using a SWOT analysis, the strengths and weakness sections can be used to help to analyse the internal environment. A swot analysis provided by MarketLine Advantage states that the strengths of sports direct are high liquidity, sustained financial growth and multiple selling channels.it also shows the weakness of sports direct of having a poor inventory turnover. Sports direct can base their strategy around what they are good at and find ways to overcome the weaknesses in their business to improve it. (Marketline,2018)
The value chain framework provides the primary activities of a business. This can be used to provide sports direct of how they can create a competitive advantage in their market. For example, inbound and outbound logistics are good which creates a better profit margin for them as they are efficient in getting supplies in and getting them to where they need to be. However, they could provide a better service in to increase their competitive advantage. The independent stated that “sports direct ranked as the UK’s worst retailer” they go on to mention that people are considering the ethics more before purchasing and that their decline in reputation is due to the poor working conditions. Which relates to the operations part of the value chain. (Independent,2018)
All three environments impact the strategy of sports direct as they are sections of the overall environment of which they compete in.
The main factors which affect sports direct is their approach to having low cost as so people would argue that they are immoral and exploit the worker. However, is it immoral if the happiness created from sports direct is greater than the amount of unhappiness caused by them exploiting workers. This is the concept of act utilitarianism. (Dimmock, M., & Fisher, A. 2017). Sports Direct are doing things illegally in their business model even if they are unaware of them going on, the paying below minimum wage incident. If they don’t know they are going on, then its down to the leadership of the business to take responsibility for it as it’s occurred from the poor communication chain in the business. These illegals are potentially immoral could disrupt their strategy as its damaged their reputation which could lead to less sales as the trend of becoming more ethically concerned is becoming more popular. This would be devastating for Sports Direct because of the level in competition there are alternatives for customers to go to. In extreme cases if too many people boycott Sports direct then there is no need for a strategy as its not profitable for them anymore. Even if sports direct do major promotion trying to repair their brand then it still might be ineffective because people will still see it of how they were. The independent are supposed to give a fair review of the situation and should be reliable however the article doesn’t specify how the rankings were obtained. The exploitation of workers contradicts the company’s values of respecting all people which gives a could be perceived as Sports Direct being an untrustworthy business which could affect reputation.
Another key factor affects the strategy of Sports Direct is the increasing labour costs for them in the UK. As minimum wage rises this reduces the margin of profit if they leave price the same. This will mean their pricing strategy will be less effective. There is a proposed minimum wage increase in the future as well. This could mean that sports direct could relocate their factories away from the UK to a place with cheaper labour costs to prevent this from happening. (Gov.uk,2018) A significant factor for all businesses in the UK will be Brexit and the uncertainty and unpredictability which surrounds it, as this could change the business environment itself depending on what happens. Brexit could mean that the cost of goods increases for them. This would have the same affect as the labour cost and if they occur together then sports direct would need to assess if the strategy is still viable. However, it could lower costs for them depending on the deal the government make hence its hard to plan for but still sports direct should have a plan for likely outcomes of Brexit.
To conclude there are many strategies for sports direct plc and that the business environment can impact on the strategies in various ways because the environments are changing. The business environment can be broken down into three sections, macro, industry and the internal environment. The key findings are that Sports Directs reputation has been damaged however they have still had this year high profits despite the decline in them. This has a major impact on strategy because they want to please shareholders. In the future sports direct could have to change their strategy because of the way trends are forming as their current strategies might not be viable or there’s a potential for a better strategy to be put in place however it depends on what happens in the market, which is looking likely to grow however factors like Brexit could change that market depending on what the outcomes are. Only time will tell what the outcomes are and the effect of them are on Sports Direct’s strategy.