Regis Schultz began his Thursday with a bike ride through Manchester, wearing his new Nike Tech Fleece. The JD Sports chief executive purchased the jacket for £120 in November to protect him against the windy north.
The mild-mannered Frenchman’s shirt would become the centerpiece of the chilling trading report he delivered to the City from Bury, Greater Manchester. JD Sports had posted its First Profit Warning in nearly two decades.
Schultz stated that the company’s profit expectations were 10 percent below what it had anticipated. Shares of the company fell by 23 percent.
Schultz blamed many factors from the economy to weather, but one less obvious factor played a crucial role in the decline of JD’s sale — Schultz being one of the only consumers who paid the full price for fleece.
Tech Fleece’s latest hoodies, trousers and joggers were meant to be the season’s biggest hit. The range was launched in 2013 and is a favourite of Jadon Sancho, Manchester United’s Jadon Drake.
Nike’s tenth anniversary was celebrated last year with a new edition of the classic streetwear. The campaign, “Don’t Sweat the Technique”, featured Central Cee the rapper, Erling Haaland the footballer, and Naomi Osaka the tennis player.
Esquire magazine said that it was “undoubtedly Britain’s tracksuit”.
The new version is lighter, more comfortable, and partly made of recycled materials.
Simon Irwin is a retail analyst who said: “Nike has been hyping up this new fleece since a long time — for almost 18 months.”
JD Sports bought the hoodie in large numbers, as its close relationship with Nike had helped to grow the company. Nike believed it could charge an inflated price. Around the fall, JD Sports began stocking their stores with the hoodie, priced at £120. They were confident that the product would sell out quickly.
JD customers felt differently when faced with a rising cost of living and unusually warm weather.
Analysts claimed that the retailer priced the product in an “unsympathetic” manner
Jonathan Pritchard is an analyst with the stockbroker Peel Hunt. He said the product was priced “unsympathetically”. He said, “It isn’t that cold, so the consumers will think, ‘oh, well, I won’t bother,’ and that clearly harms sales if prices are high.” It means people’s desire is less sticky.”
It is evident that JD and Nike miscalculated the price, despite the mild climate. Pritchard stated: “The initial price increase tolerance that Nike had thought would be acceptable was wrong… They added a few bells and whistles and overcharged.”
Kate Calvert, a senior analyst at Investec’s investment bank, stated that footwear was easier to innovate than clothing. Clothing hasn’t changed much in the last few years. Consumers don’t buy upgrades. You can only upgrade a fleece so many times.
Retailers in America and the UK began slashing Tech Fleece’s prices to move warehouses full unsold stock. JD did the same in December, when it makes about a third its profits. On its website, some jackets can be purchased for around £80. Even Nike has started heavily discounting the jackets through their direct-to consumer websites.
Clothing is the key to JD Sports’ higher profit margins. The margins were eroded by slashing the price of an expensive jacket, which was ordered six months earlier.
JD Sports rarely issues profit warnings. John Wardle (whose initials form the J and D in the company name) and David Makin opened a sports shop in Pennines in 1981. The modern JD Sports began to take shape under the leadership of the manic Peter Cowgill. AJ Bell, a stockbroker, says that during his tenure JD Sports returned 8,023 percent to investors, compared to 228 percent on the FTSE 100.
His success is largely due to his close relationship with suppliers such as Nike and Adidas. Cowgill, facing competition from Mike Ashley, the owner of Sports Direct who adhered to the motto “pile ’em up, sell ’em low”, was focusing on his relationships with Nike in order to obtain exclusive rights to their latest merchandise.
JD Sports was accused of being too optimistic with its £1 Billion profit forecast
Retail analyst Irwin stated that Cowgill’s close relationship with strategic suppliers like Nike leaves the company vulnerable to shocks by these suppliers. Nike downgraded their own profits last week and announced a major program of cost-cutting. JD cannot do much to increase demand for Nike products if the demand is not there.
Sources said the relationship had strained in recent years. Nike’s decision to move its “direct-to-consumer” channels and its discounts on Tech Fleece show that suppliers are looking beyond Bury. Sources within the company emphasized the strength of the Nike and JD relationship.
Success can also breed hubris. Insiders said the company was overly optimistic when it forecasted profits of more than £1billion and that they should have managed expectations better. “We’ve been overly optimistic…I don’t think we understood as much as we ought to.”