How fair does Sports Direct play?

May 1, 2015 7:29 pm 0 comments Views:

The chain is booming, and its price labels offering large discounts are highly tempting – but its tactics for shifting goods leave consumer law experts unimpressed. Harry Wallop investigates

Last year, sales jumped 24 per cent to £2.7bn, and its pre-tax profits increased 15 per cent to £207m.

Number 150 Oxford Street is a rather fine art-deco building, a four-storey, glass-fronted former theatre, right in the centre of Europe’s busiest shopping street. Pedestrians might not notice the architecture: it currently serves as the flagship for one of Britain’s most successful retailers, Sports Direct.

The huge shopfront is mostly a vast open door, welcoming you into the Nike section, with posters of Mo Farah running and Maria Sharapova wielding a tennis racket.

It is a sign of how far the brand has come. Only about five years ago, its business model was to operate out of either basement shops or from first floors, where rent is up to 90 per cent lower than in the high street. Shoppers would have to take an escalator up, or down, and Sports Direct would have to pay top-whack rent only for a small entrance on the high street.

Those days are long gone.

Sports Direct, along with Aldi, Lidl, Primark and Poundland, has become one of the great recent success stories of the high street, taking advantage of the consumer downturn to open more and more shops offering cut-price goods to people on a budget.

Offering everything from camping gear and swimming trunks to baseball caps and footballs, it stocks most of the sports kit you could possibly ever want, all at bargain prices.

Last year, sales jumped 24 per cent to £2.7bn, and its pre-tax profits increased 15 per cent to £207m.

This, in turn, has helped its deputy chairman, Mike Ashley, who founded the business 33 years ago, to become one of Britain’s richest men. He is valued at £3.5bn, allowing him to buy Newcastle United and take a significant stake in Rangers Football Club.

What has been the secret of this astonishing success?

Mike Ashley

To find out I, and a team from Channel 4’s Dispatches, have spent several months investigating.

Discounting is the most obvious tactic Sports Direct adopts to persuade shoppers through its doors. Even at its Oxford Street flagship, it is hard to find an item of clothing that is not on some sort of promotion. It sells a wide variety of riding jodhpurs, for instance. All are reduced in price. So, too, the women’s boxing gloves, from the “Mega Value” £14.99 ones to the “Mega Value” £62.99 ones – turn over the products and, on the back, there is a higher price struck through with a red line.

The strategy of discounting everything applies to its website also. Of the 244 kids’ hoodies, all but two are discounted. Of the 3,218 men’s trainers available to buy today, just 87 are not discounted.

The implication, to an ordinary shopper, is that they are getting a bargain, that Sports Direct has cut the price.

But has it?

One simple test we did was to buy a pair of Nike Flash Flex 2014 trainers on the day they first hit the shops in October last year. Even then, at Lillywhites (part of the Sports Direct empire), the box had a label with a price of £74.99 struck through and a new price printed saying £59.99.

Now, £74.99 might have referred to the price at which you could have pre-ordered the trainers. But the Department for Business, Innovation and Skills has published guidelines saying any higher price – unless explicitly explained otherwise – should have been available in that store for the previous 28 days.

Deborah Parry, a consumer law expert at Hull University, who trains trading standards officers, says: “It is quite clear that their labelling is not following the terms of the guidance – they are not providing sufficient information.”

Her concern is that the practice of printing a higher price which is then crossed out could mislead shoppers into thinking they are getting a far bigger bargain than they really are.

“[Shops are] supposed to spell out exactly what their offer means, how long it has been on display, whose previous price it is, and if it hasn’t been sold for very long, they should be saying how long it has been sold at that higher price etc. So consumers can look at the label, read them, make a proper decision and then act on it.”

The higher price, she explained, could in theory refer to a manufacturer’s recommended price or a rival’s price, but it has to be made clear on the label. And Sports Direct does not make that clear.

More intriguingly, many of the “higher” labels are stuck on top of older labels. One whistleblower, who used to work at the company’s main warehouse in Shirebrook, Nottinghamshire, said there was a practice called “blocking out”, which involved workers placing new pricing labels on top of the originals.

One example, caught on undercover footage, shows a pair of Hello Kitty ankle boots arriving in the warehouse from Asia with a price of £19.99. But in the pricing department, a label of £29.99 had been placed over the top of the first price, before then being given a discount label of £14.99. The boots were then sent to the store.

Which was the original price – £19.99 or £29.99? It’s unclear. But the latter suggests a bigger bargain than the former.

Sports Direct says it does not mislead any customers. “Our intention is to continue to bring our customers exceptional value for money and that they continue to get the most competitive prices. We continue to monitor our promotions to help achieve this,” said a spokesman.

Sports Direct shouts most loudly about its bargains when it closes down a store. When I visited its Glasgow store at 34 Argyle Street in the New Year, it had lots of signs saying: “Closing down – all stock reduced”. It is slightly questionable whether this was a true closing-down sale because the moment it shut this store, it opened another one – right next door, at 28-32 Argyle Street.

A similar thing happened in Lincoln, when last December the company moved its store within a retail development, relocating about 50 yards away. The old shop was full of signs saying “closing down” and “all stock must go”.

Sports Direct insisted there were additional bargains in this sale. But Dispatches monitored the price of three items of clothing: Nike lycra ladies’ shorts, down 30 per cent to £22.99, Slazenger canvas shoes down from £5 to £3.50, and an Adidas sports bra cut from £21.99 to £17.99. In all cases, the prices remained the same – including the discounts – at the new store.

Does this sleight of hand about relocating a store, rather than shutting up shop, really matter?

Consumer experts think so. Ms Parry says: “If [consumers] are not aware that the prices are going to be maintained at the new store, then they may be making purchasing decisions that they regret afterwards.”

Regulators are not wild on the practice either. Back in 2008, the Office of Fair Trading censured Sports Direct for misleading customers about closing-down sales that dragged on for months before closing for refurbishment, only to reopen.

This weekend, a group of consumers is protesting outside Sports Direct stores – but not because of any allegedly misleading prices. No, they are fans of Newcastle United, the club owned by Mr Ashley.

Some fans boycotted last weekend’s (lost) home match against Tottenham, with a reported lower-than-average crowd of 47,000.

Many fans have been unhappy with his ownership, claiming he has failed to invest in good players despite the club having plenty of cash on its balance sheet.

It is certainly true that Sports Direct has benefited from Ashley’s ownership of Newcastle. If you visit the club shop at St James’ Park (which Ashley briefly tried to rename the Sports Direct arena before backing down), it is a Sports Direct Shop. And the stadium, too, is plastered in adverts for the retail chain, a privilege for which Sports Direct does not pay, according to Newcastle United itself.

Indeed, Newcastle United contributed £3.4m in revenue to Sports Direct last year, according to the retailer’s annual report. And Rangers Football club, in which Ashley has a 9pc stake, is also a contributor to Sports Direct’s revenues, handing over £3.8m last year.

The stake in the Scottish football club may seem modest, but thanks to a £10m loan that Ashley has extended to Rangers, he has security over quite a few of the club’s assets, including the ground and the club’s registered trademarks.

Ashley has shrugged off protests from football fans and has said he was “unavailable” to appear before the Scottish affairs committee when summoned by MPs in March. He sent the company’s chairman instead.

And while the tills keep ringing at Sports Direct, it’s likely to remain that way. Part of his success has been to keep a low profile.

But it is worth noting that 150 Oxford Street, as well as being a great building, serves as a metaphor for the sometimes cruel ups and downs of the retail industry. For many decades, it was home to Woolworths, when it was a much-loved general store; then in 1984 it became HMV, opened with great fanfare by Bob Geldof. At the time, it was the world’s biggest music store.

On the high street, as on the football pitch, long-term success can never be guaranteed.

Get More Right To Your Inbox!