JJB can be a winner again

HIGH Street group JJB Sports is not a telecoms or media stock - it is a plain old retailer generating lots of cash and growing its sales every year. Why its shares have been hammered 65% over the last 12 months is beyond me.

Are City investors losing their nerve? JJB has had a string of problems this year. World Cup sales were poor and the acquisition of discounter TJ Hughes, because 'it was cheap', was puzzling.

Along with other sports retailers, it came under investigation by the Office of Fair Trading over alleged price-fixing of replica football kits. Its decision to open health clubs alongside some of its larger stores is poorly timed - just look at the problems Holmes Place clubs are facing. Latterly, the suicide of JJB chief executive Duncan Sharpe, son-in-law of chairman Dave Whelan, added to concerns about where the business is going.

But JJB is not a new kid on the block. Profits have grown consistently for years and (if you regard this year as a blip) are likely to continue to do so. Perhaps the management should get the benefit of the doubt when trying new ideas.

July's profits warning, albeit disappointing, came after a magnificent year when profits grew 30%. Though the new chief executive, Tom Knight from Blacks Leisure, has yet to prove himself, executive chairman Whelan is tried and tested. JJB was founded by Whelan, a former Blackburn Rovers footballer. His family owns 37%, worth £140m. Ian McDonald at broker Numis said: 'Whelan is not the type to let the business slip away.'

The shares trade on just six times earnings - a very low level for a company of its size and standing. They yield 4%. Whelan clearly believes the rating is too low and is considering a management buyout. Plans have been on hold since Sharpe's death, but may be resurrected next year.

JJB has been hit by fears of competition from supermarkets and a revived Marks & Spencer. Ten years ago most people would never have considered buying clothes with their food. Today some believe that supermarkets can compete, and beat, the High Street in almost every area.

For example, Body Shop floundered when its face lotions were copied by Boots. Now Boots is struggling as its own products are copied by supermarkets.

But it is far too soon to sound the death knell of the specialist retailer. Any store can succeed so long as it understands its customers and moves with the times.

Take butchers shops - over 20 years thousands have gone out of business. The simple explanation is that people find it easier to buy their meat at the supermarket. But another explanation is that shoppers (who are mainly women) dislike uninviting shops strewn with sawdust, where burly men hurl animal carcases over their shoulder before serving you in a bloodstained apron.

My local butcher in South London learnt this lesson and is doing a roaring trade. It scrapped the red-and-white traditional look for spotless stainless steel cabinets and sheepskin rugs. It sells olives and other delicatessen foods that people are prepared to pay a premium for.

JJB's customers are mainly aged 18-30. They care about clothes and where they buy them. Of course, any economic downturn will dent spending, but many of these shoppers would go without rather than buy sportswear in Tesco or M&S. They want the latest fashions and, most importantly, a premium brand.

I would not swap Clinique moisturiser for Sainsbury's even if they used the same ingredients. JJB customers would not swap Nike or adidas for a cheap copy, however similar it looked.

Specialist stores still have great appeal and the very 'specialist nature' lends to a perception of superiority.

Supermarkets have already realised that consumers are rebelling against the 'one shop fits all' concept. They hope to get around this by opening 'mini-shops' within their stores.

Why would Tesco have done a clothing deal with US brand Cherokee if it believed its own-brand products would be enough to satisfy the customer?