Sports Direct trying to move upmarket with Hunter deal?

Can Mike Ashley's acquisition of USC and Cruise from Sir Tom Hunter help Sports Direct to compete with JD Sports?

by James Taylor
Last Updated: 19 Aug 2013
Even the most ardent fan of 'pile 'em high, sell 'em cheap retail chain Sports Direct probably wouldn't associate it with upmarket leisurewear. But owner Mike Ashley seemingly has ambitions to change this: he's just spent £7m taking an 80% stake in USC and Cruise, two designer fashion retailers owned by entrepreneur Sir Tom Hunter. Ashley presumably feels that having had a pretty good recession – Sports Direct shares have soared in the past few years – it's now the right point in the cycle to start trying to attract some more upmarket custom. But it’s a brave move, on a number of levels...

Ashley's predilection for snapping up stakes in other retail businesses is well known – he's always had his fingers in a number of high street pies, often snapping up relatively unloved brands for bargain prices. So, in some respects, this is a typical Ashley deal: both USC and Cruise have had their problems in recent years, with USC forced to close 15 stores as part of a pre-pack administration in late 2008, and Cruise collapsing into administration last December – which is when Hunter's West Coast Capital vehicle bought it. And since the chains have a combined turnover of £70m, this definitely falls into the 'knock-down price' category.

However, Ashley has previously seemed more inclined to operate in what one might call the value end of the market. And with their focus on designer leisurewear brands – Diesel, Henri Lloyd, Lacoste, Paul Smith and so on – USC and Cruise don't fall into that category. In fact, the idea of Mike Ashley owning a shop that sells Armani jeans for £500 a pop seems distinctly weird. But it suggests that, not content with hammering JJB Sports into the ground, Ashley now has his sights set on JD Sports too – which has also profited in recent years from a focus on relatively high-end, higher-margin leisurewear.

Can he do it? It's hard to imagine him ever being able to move the Sports Direct brand upmarket. But according to the FT, he's going to run the two chains as separate entities, while investing £20m in developing the brands and opening new stores. He'll also be able to rely on input from Hunter – the Scottish entrepreneur who first made his name by building up and selling Sports Division to JJB (isn't sportswear retail an incestuous place?), will retain a 20% stake in both brands and will continue to act as their chairman.

Sports Direct had a shaky start to life as a public company, but it's generally acknowledged to have had a good war: its shares have risen by 130% in the last year. If Ashley succeeds in adding a higher-margin premium division, at a time when consumers are bound to think twice about spending £200 on a new pair of trainers, the City really will be impressed.

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