Athleisure: a tale of two retailers

Adidas model © Adidas
Athleisure: “marketing claptrap, but it works”

The “athleisure” craze is helping JD Sports outrun long-term rival Sports Direct – but its shares are looking pricey.

Shares in JD Sports, the sportswear chain, are racing as the company cashes in on a craze for jogging bottoms. The “athleisure” trend – the term for clothes that can be worn on the high street and in the gym – has pushed JD to a record half-year profit.

Retailers are suffering as sales move online, but the company has positioned itself as “the home” of athleisure, dominated by designer lycra and pricey trainers. The chain’s growth has been so fast, pushing up sales 20% to £971m, that it would be “unreasonable” to expect it to continue at its current pace, said the group’s chairman, Peter Cowgill.

“Never underestimate” the ability of the fashion industry “to reinvent a trend, give it a fancy name, and try to tell you it’s new”, says Ben Marlow in The Daily Telegraph. Athleisure is nothing more than an excuse to look fashionable while slouching around in tracksuits for the entire weekend.

Because models are “strutting around” in tracksuit bottoms, many Londoners are slavishly copying the trend, turning up to work in their yoga pants. But it may be more than a passing trend. Staying fit and showing it off has become a cultural norm: going to the gym is no longer a chore, but an “aspirational” form of living, so it’s “no longer shameful” to parade around in gym gear.

Contrast JD Sports with its embattled rival Sports Direct, says Paul McClean in the FT. While JD says it has athleisure “sewn up”, Sports Direct has focused on being the cheapest retailer, meaning it has missed the trend, as its founder, Mike Ashley, has been embroiled in questions over conditions for workers. As a result, JD’s shares are up 50% in the last year, while Sports Direct is down by two-thirds.

JD is showing Ashley “how the game should be played”, says Jim Armitage in the Evening Standard. It has no zero-hours contracts and directly employs most of its staff. While Ashley has argued with suppliers about how their products are piled up, JD works with them “hand in glove”, setting aside dedicated space for key brands, such as Adidas and Nike. That has fostered a sense of “theatre” around the gym-buying obsession. It is “marketing claptrap, but it works”.

The divergence in the two firms’ fortunes has been growing for a while. Over two years, JD has shot up 250%, as Sports Direct has issued successive profits warnings. But the stockmarket, Armitage says, is up to speed. Like its lycra gym pants, JD looks overpriced, on a lofty price-earnings multiple of 27 times. Sports Direct is on 6.9 times. “For all the quality on offer at JD Sports, if I were looking for a shares bargain, I know where I’d go.”

IPO watch: doughnut king Krispy Kreme

Krispy Kreme, the doughnut maker known for its pop-art packaging and colourful toppings, is preparing to list in London. The brand has been a doughnut sensation in America for decades, but only entered the UK 13 years ago, opening its first outlet in Harrods.

Krispy Kreme doughnuts © Krispy KremePrivate-equity group Alcuin bought out the UK arm five years ago for £25m and Krispy Kreme’s growth has been rampant since, with 50 million doughnuts a year sold at self-service cabinets in Tesco. It has also branched out into milkshakes. However, plans to list the business suggest that its private-equity backers think they’ve pushed the brand as far as they can.

The UK initial public offering (IPO) market has been lacklustre for most of this year, but Krispy Kreme is likely to tempt investors. The IPO is expected to raise around £200m – but is it likely to be a good long-term investment?

Trading IPOs can be a winning strategy: between 1965 and 2005, new listings in the US jumped by an average of 22% in their first month of trading, according to one study. However, studies have also found that hot performance early on is usually followed by poor returns. Add in the trend towards healthier eating and it’s likely that Krispy Kreme shares will be a bit too sickly for prudent investors.