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On the ball?

By: Jeff James

Listed Under: Top Story

Published: Friday, August 13, 2010

Despite England’s recent performance in the 2010 World Cup, trade for both sports and general retail businesses have been more positive than initially suggested.


So the honeymoon period is officially over. As usual, the country had such high hopes for the England football team in the 2010 World Cup. Unfortunately, the team’s fate was sealed in that disastrous match with Germany.

No sooner had that match finished, the daggers were out. The TV pundits were lambasting the team. The papers had a field day. Even the fans grudgingly accepted they had spent a lot of time and money to see a team that was not at the apex of quality. All were dividing their time apportioning blame between manager Fabio Capello and the players themselves.

POTENTIAL DISASTER
With respect to businesses, however, the early burnout was a potential disaster. Many big-name brands had latched onto the World Cup tournament in some shape or form. Some were sponsors of the England football team (such as Nationwide, which launched a dedicated advertising campaign linked to the World Cup). Others used the World Cup as a hook for special promotions, including supermarkets, technology shops and, of course, sports shops.

However, recent statistics show that despite England’s performance businesses still managed to perform well. Take Sports Direct, which reported an impressive set of full year results. It reported an annual profit before tax of £119.5million. UK retail sales for the year grew 11 per cent to £1.1billion, nearly three-quarters of group revenues. Like-for-like sales at the group’s stores rose 3.4 per cent and online sales trebled to just over £50million.

The company said it had expected an increase in sales as a result of the World Cup. And indeed sales were high in the run-up to the tournament and were particularly strong on the day of the England vs USA game. However, Sports Direct acknowledged England’s departure from the tournament was reflected in its sales figures, which decreased after the initial surge.

Commenting on its performance, Sports Direct’s chief executive David Forsey said: “We budgeted for [England reaching] the quarter finals because that’s where the seedings say we should have got to. But it was made worse by the actual performance in the tournament. We were left with some stock that we weren’t planning to get left with, but we’ll work through that.”

Despite this, Sports Direct still predicts good times ahead, and Forsey’s comments bear this out, predicting more growth for the next year: "We believe we are operationally stronger than ever…Looking ahead, we are confident that initiatives we are taking across all areas of the group put us in a strong position for the next phase of our growth.”

Another company to enjoy strong results was JJB Sports. In a recent report, the company said that sales have been in line with expectations. Reporting on the six-weeks between May 24 and July 4, JJB Sports said sales were up 22.3 per cent on a like for like basis. It also reported a sterling gross margin of 54.5 per cent on a like for like basis, with a complete overall like for like gross margin of 43.9 per cent.

STRONG RESULTS
It wasn’t just the major sports chains that profited from the World Cup. Many other companies reported strong results during the period, one such example being UK pizza delivery and takeaway chain Papa John’s. In the UK, the company achieved 9.7 per cent growth in like for like sales, meaning that there was a two-year sales growth of 23.3 per cent. This was the 18th consecutive period of comparative sales growth for the company.

On the day of England’s first game sales went up 36 per cent. The next game against Algeria was to prove even better, with a 60 per cent rise.

Papa John’s managing director Jack Swaysland said: “There were a lot of factors at play in this World Cup that we have not seen before, so it was very difficult to predict the sales impact.

"The tournament starting on a Friday turned out to be very good for us, as people got home from work and settled in for the evening to watch their first games. England then playing on a Saturday and Friday also worked in our favour, as we catered for many parties where people had decided to gather at a house rather than journey to a pub.

"It was not just the England games which saw people stay in, our sales figures across the tourney show there is no disputing that football is the country's number one sport. The advent of high definition and large flatscreen TVs, along with unbelievable supermarket deals on beers and wines, appears to be encouraging people to host gatherings at home.

“This has provided us with an added bonus of protection against the good weather. It appears that for a lot of fans the risk of missing out on some of the action as they tend the BBQ was too much, and a takeaway pizza was their solution to the problem.”

The Office for National Statistics said that retail sales volumes increased by 0.7 per cent in June. Television sales were boosted by fans investing in the latest technology to watch the football, and generally the household goods sector saw the highest monthly growth.

The British Retail Consortium also reported good news, highlighting a sales rise of 1.2 per cent on a like for like basis, compared with June 2009. The BRC also found that retail sales were boosted by TV sales, although the DIY and leisure sector performed well too.

So did England’s premature exit from the World Cup affect sales during the period after the tournament? Retail sales have not been as disappointing as predicted, and in some quarters, better than expected. John Lewis, for example, reported an 11.4 per cent year on year rise in sales, helped by shoppers out in droves because they had no team to support.

Another key factor in recent performance has been the measures unveiled in the emergency Budget. And the warnings of its implications (such as the 2011 VAT rise) mean that businesses cannot afford to rest on their laurels.

Helen Dickinson, head of retail at consultancy firm KPMG, says: “While the emergency Budget has delayed any impact of the VAT rise until later this year/early next, the effect of the wider fiscal tightening measures on consumer spending remains to be seen. The risk is all on the downside.”

David Kern, chief economist at the British Chambers of Commerce, added a warning that was even more stark: “While the recovery in consumer spending is welcome, there is no room for complacency. The economy is still weak, businesses are struggling and the full impact of the emergency Budget's austerity measures are yet to take effect. Risks of a setback remain serious.”

England’s performance in the World Cup can therefore be seen only as a contributing factor in sales performance. Other outside factors, most notably the Budget, will have more of a long-lasting impact on the economy, especially in the first part of 2011.

However, as the above examples have shown, football results, for better or worse, can impact retail sales. What the above results also show is that, despite fears that a poor England performance may hamper sales, some businesses are tough enough to ride out the storm and even make a good profit.

Let’s hope this resilience can withstand any future sub-par performances, and more directly, the impact of the recent Budget.

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