#139 British Sports Direct down for the count in Austria?

There’s trouble in Austria’s market for sports equipment. Traditionally, the market has been dominated by a handful of domestic companies such as Gigasport, Hervis, and – one of the most established among them – the Intersport group. Within Intersport, which is less of a centrally owned and controlled company and more of a loosely controlled network of independent entities, Intersport Eybl once was the largest unit with more than 2,200 employees, more than EUR 330 million in revenue, about 25 percent market share, and 55 sizeable stores throughout Austria (and Germany). Since 2011, however, revenues started to decline, rapid expansion took its toll, and in 2013, Intersport Eybl was close to insolvency. The majority owners of Intersport Eybl decided to sell 51 percent of their shares to British sports retailer Sports Direct. For only EUR 10.5 million and another EUR 30 million in fresh capital, Sports Direct had bought itself access to Austria’s EUR 2.7 billion market for sports equipment. Or so it thought. The last five years since its entry into Austria were not exactly a slam dunk for Sports Direct. By year 3 (in 2015/16), Sport Direct’s market share had declined to about 13 percent, revenues had slipped by the double digits and the company had amassed losses of EUR 126 million.

So, what exactly had happened? To begin with, Sports Direct’s no frills, low-cost business model was a bad fit for the Austrian market. Sport is a serious matter in Austria, and one might even say that it is an important part of individuals’ self-fulfillment. Intersport Eybl’s loyal core customers particularly were used to outstanding advice from well-informed sales associates. They were used to high-end store design and wanted top of the line products that are both high-performing and fashionable. Sports Direct, however, gave their customer a bare bones environment with lower-priced products that were often in-store brands instead of global brands. Rumor even has it that Sports Direct has such a mistrust of its employees that it requires them to wear pants without pockets for the fear of theft, which is deeply insulting to Austrians who usually take pride in their work. It comes as no surprise that Sports Direct lost its best employees and that employee quality, morale and engagement of the remaining staff were not up to Austrian customers’ expectations. Austrians who shop for lower-priced sports equipment buy them online or in discount retail, but not in sports retail. In addition, competition got vicious. For instance, the remaining Intersport entity offered a EUR 50 voucher to all former Intersport Eybl (and now Sports Direct) customers who were willing to switch their loyalty cards. In addition, Intersport and other retailers aggressively opened new stores at an unprecedented pace, making it even tougher for Sports Direct to compete.

By 2016, Austrian customers had largely turned their backs on Sports Direct. Only less than half of Austrians recognized the brand in tests according to market research firm Gallup, as opposed to almost 100% for Intersport. To make the mess complete, recently Norwegian sports retailer XXL also entered Austria, and French competitor Decathlon has announced its entry for later in 2018. Looks like another curve ball is coming Sports Direct’s way.

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