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April 2006

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Quite a few distributors seemed relieved that talks broke down, without them having to openly decline Mr Price’s business. Several reasons were offered:

  • There is understandably reluctance with some distributors to allow Mr Price to pick only the best products from their range. Some distributors felt this is like picking the cherries off the top of the ice cream; they are only interested in selling the items that sell well.

  • We also heard that Mr Price asked for Sportsman’s Warehouse quality at Mass prices, a concept that is foreign to most players in the sports market.

  • Then there is also the pressure from the existing independent and chain store customers who will not take too kindly to distributors supplying Mr Price under those terms. Certainly there is no love lost between Mr Price and Sportsman’s Warehouse.

  • Brands are clearly afraid of being used for a while and discarded in a few years time when not required anymore. No guarantees are being offered.
  • Mr Price Sport?

    Everybody, except Mr Price,* is talking about the new sports chain — NICOL DU TOIT reports on the rumours

    Like many other people in the sports industry, we at Sports Trader have also been very interested to hear the real story about how Mr Price is planning to enter the sports market, but despite many requests they have been unwilling to talk to us, let alone tell us about their plans. That leaves us no alternative but to report on the rumours doing the rounds and to speculate which strategy is most likely.

    Like many other retailers in SA, Mr Price is currently riding the crest of the economic growth wave. Sales and profitability records are bettered with every press announcement. In November last year Mr Price announced interim results which reported headline earnings increased by 54%.

    At the time CEO Alastair McArthur said that the sector as a whole had continued to benefit from the buoyant economic conditions and sustained strength in consumer spending. Mr Price grew revenue by 26%, Sheet Street by 31%, Mr Price Home by 26% and Milady’s by 21%. Despite getting rid of their Galaxy Jewellers and The Hubb divisions they still had a total of 732 stores at that time.

    They did not only increase turnover, but also managed to increase the operating margin from 6.2% to 7.7%. McArthur said the group’s balance sheet remained strong with cash resources of R525-m and a further R182-m due to be received from the sale of The Hubb and Galaxy divisions.

    Mr Price has believed in sports sponsorship for a long time. Apart from the well known support of the Sharks rugby team, they also used other sports such as surfing extensively. They have also recently bought the Sharks franchise — we have already heard of independents declining to stock the Sharks replica jersey because they are feeling that they are being asked to sell a competitor’s product.

    Sport has clearly been a favourite promotion vehicle for Mr Price for some time and it is therefore perhaps not surprising that they decided to investigate that possibility. The strong financial performance, and particularly the strong balance sheet, give Mr Price a lot of firing power and places them in the ideal situation to launch a new division, or buy a new business.

    Mr Price tried to do the latter when it entered negotiations with the owners of Sportsman’s Warehouse. These negotiations did not reach fruition and subsequently Massmart made an offer for Sportsman’s Warehouse, currently being decided upon by a Competition Commission tribunal. According to some sources they were never serious about buying Sportsman’s Warehouse and only wanted to look at the profitability of a sports chain, but that in all likelihood is only a facetious comment.

    Soon after negotiations between Mr Price and Sportsman’s Warehouse broke down, rumours starting doing the rounds that Mr Price were investigating starting their own sports division. Paul Stone, previously buyer at Sportsman’s Warehouse was recruited by Mr Price and moved his household to Durban.

    Speculations were rife and all over the dial. Some people said that they were going to open 150 stores simultaneously, others said that they were opening fifty in the first year, other said that they will have the sports division as a store within a store concept and actually open no stores.

    Latest rumours indicate that they will kick off with a store in Cape Town, one in Durban and two in Gauteng, to be followed by another twenty in a few month’s time. We also hear that the opening of the first store has been postponed from April to June. Clint Larsson will head up the division.

    Some said that they will stock a wide range of brands, others that they will only do their own house brand. One distributor of sports products after the other were called in by Mr Price’s buyers, given the barest minimum of information and sworn to secrecy.

    However, this trade is notorious for not keeping secrets and it was not long before Mr Price’s new sports division was the biggest topic of discussion since inflatable balls.

    The distributors who were called to the interview read like the Who’s Who of the top brands in SA, and it soon became interesting to note who they wanted to talk to, and who not.

    It soon became clear that only the top brands, the leaders in a particular range, were asked to the party. We even heard that some brands were asked to give Mr Price exclusivity on certain products within the brand.

    Rumours were also doing the rounds that they approached a number of people to assist them with sourcing their own sports products. Daryl Scott who previously ran his own distributorship, Sportopia, went to work with Mr Price. He obviously has sourcing experience and will probably be a likely candidate to do that, but lately Lance Robinson of Star Resources, distributors of a range of gym equipment to specialist retail shops, is also being mentioned.

    It seems likely that they are planning to stock the top brand or two in a range to try and attract the customers into the shops. Once inside the shop, the customer will be encouraged to also consider the Mr Price house brand, which we heard will be available under their existing Maxed brand.

    Quite a few of the distributors we spoke to informed us that they were unable to reach agreements with Mr Price. This might be a euphemism for declining to do business with them.

    But quite a few distributors have already come to an agreement with them and stock is almost ready to be delivered. All suppliers have asked us not to disclose their identity as the situation is clearly at a very delicate stage.

    Independent retailers who we talked to were confident that their business will not be seriously affected by Mr Price. They agree that in the sports industry, product knowledge is one of the most important key success factors and chains are unable to deliver on that score.

    It is simply not possible for a large chain to recruit, train and keep knowledgeable people who can effectively compete with the enthusiastic independent owner.

    They predict the fight will be squarely between Mr Price and other chain stores, such as Sportsman’s Warehouse for equipment and Total Sport for the clothing and footwear products.

    * We asked for an interview, when denied, sent the article to the Mr Price sports division MD Clint Larsson for comment, but they refused to talk to us.
    * Read our copyright notice before making use of this article





    © SA Sports Trader