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View from the Street: Fashionable fleece no match for cooling demand and investor sentiment

Image of shirts hanging on a clothes rack.

Phoebe O'Carroll-Moran

Phoebe O’Carroll-Moran

Senior associate

January, so often the coldest month of the year, has already seen a chill settle over the market for mid-range athleisure. Last Thursday, JD Sports chief executive, Régis Schultz, delivered the company’s first profit warning for nearly two decades, coming in 10% below expectations at £915 million. As reported in The Times’ autopsy of the event, Schultz sported a fleeced hoody as he set off to deliver the news.

This wasn’t any old fleece, though. It was the company’s hero product of the season, a £120 Nike Tech tracksuit top.

Regardless, it wasn’t a good look, and the company’s share price tumbled 20% after the announcement. Schultz attributed the firm’s underperformance to an unseasonably balmy autumn, among other issues. But the sportswear behemoth’s woes arguably point less to a warm climate than a cooling market.

Economic pressures have seen UK consumers tighten their belts across the board. JD Sports had thus far navigated the downturn in demand, but even the self-styled “king of trainers” could not outrun the realities of the cost-of-living squeeze.

The market for “mid-range” sportswear is on the slide. Particularly hard-hit is consumers’ appetite for expensive discretionary items, such as statement fleeces and £175 “essential” trainers.

The downturn has affected retailers across the board, but JD’s focus on fashion over form has made it particularly vulnerable. Sluggish demand for Nike apparel left the retailer out in the cold, prompting unexpectedly heavy discounting. Even so, consumers appeared unmoved, favouring more affordable alternatives, such as those found in the resurgent M&S’s ‘Goodmove’ range.

A peril of high-end products is that they can become a lightning rod for scrutiny, especially when they seem to jar with the cultural moment. Look no further than Adidas’s affiliation with Yeezy sneakers. In this case, they lent unflattering optics to already unfortunate results. The announcement was greeted with crowing from the business pages, which fixed upon the fleece as a symbol of out-of-touch corporate hubris.

The event was every communications manager’s worst nightmare but comms problems are usually symptoms of a deeper malaise in corporate strategy. For a company that prides itself on being savvy to the latest trends, JD Sports’ reliance on higher-end brands has put it behind the curve compared to the likes of Next, which reported a 5.7% surge in sales in the nine weeks to end-December.

JD will survive the winter of the market’s discontent, but the question is whether its fortunes will increase with temperatures through spring and summer. Investors keen to avoid being fleeced will be paying close attention to Schultz’s choice of top, as well as the company’s bottom line.