- Franchise agreement inked for Middle East
- Marks ‘pivotal move’ in JD’s push into ‘underpenetrated’ markets
- Deal follows news of North America softness
Retailer JD Sports Fashion (JD.) has struck its first-ever franchise agreement as the trainers-to-tracksuits seller looks to tap into bumper demand for athleisure in the increasingly sports-mad Middle East.
Struck with Dubai-based well-being company GMG, the deal marks a significant milestone in the delivery of the global growth strategy unveiled by JD’s new CEO Régis Schultz at the retailer’s investor day in February.
JD Sports insisted the partnership marks a ‘pivotal move in the continued expansion into underpenetrated markets’, but the market reaction was rather muted with shares in JD Sports pretty much flat at 146.1p.
Investors are still digesting disappointing news of a sales growth slowdown for the month of May and softer recent trading in JD Sports’ North America businesses.
Sentiment towards the athleisure sector has also been impacted by a first earnings miss in three years and muted guidance from Nike (NKE:NYSE), one of JD Sports’ key brand partners.
MIDDLE EAST ATHLEISURE BOOM
Under the 10-year tie-up, GMG will open around 50 stores under the JD fascia by 2028 with a focus on locations in the United Arab Emirates, Saudi Arabia, Kuwait and Egypt.
JD Sports’ expansion in the Middle East will bring regional consumers exclusive access to the latest styles from the likes of Nike, Adidas (ADS:ETR), New Balance and Under Armour (UAA:NYSE).
A report by Data Bridge predicts that the sports apparel market in the Middle East could reach a value of US$23.2 million by 2029, at a compound annual growth rate of 4.8%.
Growth drivers for the Middle East athleisure market include the heightened focus on health and wellness engendered by the Covid-19 pandemic.
Regional consumers also increasingly recognise the additional value provided by the latest styles, or sportswear with advanced properties that will improve performance.
WHAT DID SCHULTZ SAY?
JD Sports pointed out the GMG is a meaningful contributor to the FTSE 100’s own ‘King of Trainers’ plans to open between 200 and 300 new stores each year over the next five years.
Schultz said: ‘Through my own career, I have seen firsthand the massive untapped potential for retailers in the Middle East, and I am certain that GMG - with their expansive retail expertise and a local understanding of the customer - are the best partners for us in the region.
‘We also know, from our love index, that no matter the market there is a direct correlation between having a strong physical retail presence, and popularity and love for the brand. We are excited by the opportunity to explore franchise partnerships as an avenue for further store growth in underpenetrated markets, leveraging the global growth phenomenon of athleisure while bringing our proven proposition to more customers worldwide.’
AJ Bell investment director Russ Mould explained that JD Sports may only be ‘dipping its toes in a potential franchise model for now’, but the agreement with GMG ‘points to an interesting avenue for the business. This looks a lower-risk way for JD to expand into new markets without expending too much capital.’
In its AGM (annual general meeting) update, JD Sports warned of a recent growth slowdown, though this largely reflected the impact of tougher prior year comparatives.
The retailer assured investors positive trends continued through June in its businesses in the UK, Europe and Asia Pacific and reiterated guidance for year-to-January 2024 pre-tax profits in line with the £1.04 billion consensus estimate.
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Tom Sieber) own shares in AJ Bell.
