ASOS, JD Sports, Sports Direct: UK Apparel Market Competition Report

This report provides a comprehensive analysis of the competitive landscape within the UK apparel market, focusing on three key players: ASOS, JD Sports, and Sports Direct. The study employs a multi-faceted approach, incorporating financial ratio analysis, Altman Z-score, and regression analysis to assess the financial performance and competitive positioning of each company. Non-financial factors, such as PEST analysis, Porter's Five Forces, and SWOT analysis, are also utilized to provide a holistic understanding of the market dynamics. The report examines the bargaining power of customers, competitive rivalry, and the impact of political, economic, socio-cultural, and technological factors. Furthermore, the report includes an overall ranking of the companies, critical reflections on the findings, and recommendations for strategic improvements. The research aims to determine how these companies effectively compete in the UK apparel market, offering valuable insights into their strengths, weaknesses, opportunities, and threats.

How Are ASOS, JD Sports and Sports
Direct Able to Effectively Compete
Within The UK Apparel Market

TABLE OF CONTENTS
INTRODUCTION AND RATIONALE..........................................................................................1
Introduction............................................................................................................................1
Rationale.................................................................................................................................2
PEST ANALYSIS AND CSF..........................................................................................................2
PEST Analysis........................................................................................................................2
Critical Success Factor (CSF)................................................................................................4
INDUSTRY COMPETITION ANALYSIS....................................................................................5
COMBINED RATIO ANALYSIS..................................................................................................7
Financial Ratio Analysis.........................................................................................................7
Non-financial Analysis.........................................................................................................16
SWOT ANALYSIS.......................................................................................................................17
SWOT Analysis of ASOS company:...................................................................................17
SWOT Analysis of JD Sports company:..............................................................................19
SWOT Analysis of Sports Direct company:........................................................................20
OVERALL RANKING.................................................................................................................20
Altman Z-score.....................................................................................................................21
Regression Analysis.............................................................................................................22
Overall Ranking....................................................................................................................25
CRITICAL REFLECTION............................................................................................................26
RECOMMENDATIONS...............................................................................................................26
CONCLUSION..............................................................................................................................27
REFERENCES..............................................................................................................................28

ILLUSTRATION INDEX
Illustration 1: Porter's 5 Forces Model.............................................................................................5
Illustration 2: Gross Profit Ratio......................................................................................................8
Illustration 3: Net Profit Ratio.........................................................................................................8
Illustration 4: Current ratio..............................................................................................................9
Illustration 5: Quick Ratio.............................................................................................................10
Illustration 6: Total assets turnover ratio.......................................................................................11
Illustration 7: Inventory or stock turnover ratio.............................................................................12
Illustration 8: Debt to equity ratio..................................................................................................13
Illustration 9: Interest coverage ratio.............................................................................................14
Illustration 10: Earning per share...................................................................................................15
Illustration 11: Employee Turnover Ratio.....................................................................................17
Illustration 12: Altman Z-Score.....................................................................................................22

INDEX OF TABLES
Table 1: Calculation of profitability ratios.......................................................................................7
Table 2: Calculation of Liquidity ratios...........................................................................................9
Table 3: Calculation of Efficiency ratios.......................................................................................10
Table 4: Calculation of Solvency ratios.........................................................................................12
Table 5: Calculation of investor ratio............................................................................................14
Table 6: Calculation of employee turnover ratio...........................................................................16
Table 7: Calculation of Altman Z-Score........................................................................................21

INTRODUCTION AND RATIONALE
Introduction
Apparel industry is one of the fastest growing sector in UK which contributes in the
growth rate of UK economy up to the greater extent. Under the respective industry, at the
majority level cloth and footwear comes into consideration and sold by its organisations. There
are huge number of companies operate in the apparel industry and generate higher revenue and
profit. The reason is that, they provide cloths and footwear according to the new and innovative
fashions. In the present study, basically three firms undertaken to carry out research on the
competition level of apparel industry of UK. First company introduced in the present case is
ASOS which operates in the clothing retail sector where major products offered by it are like
clothes, shoes, beauty and accessories. Second firm is JD Sports Fashion Plc which also operates
under the retail industry and products of it are clothing and sportswear accessories. At the last,
third organisation considers for conducting present study is Sports Direct International Plc which
has presence in the retailing sector and offer sporting goods only.
The present research focuses on the competition level of chosen businesses which are
operating in the Apparel industry of UK economy. In order to make effective analysis that, such
entities compete in the respective industry up to which extent, there are three concepts are used
which are like financial, non-financial and statistics. Under the financial perspective, the present
study is carried out by taking support of the ratio analysis and Altman Z-Score. With the help of
such methods business performance in the competition of UK apparel industry is measured with
profitability and liquidity position. Apart from this, non-financial performance of ASOS, JD
Sports and Sports Direct is analysed with the help of PEST, and Porter's five forces analysis.
Through these techniques, overall business performance can be measured effectively up to the
greater extent. In this, quality of the products like cloths, footwear and sports accessories along
with the several internal aspects analysed properly. In addition to this, regression analysis
method is focused in the present research which rely under the statistical aspect or perspective. In
this tool of SPSS, effectual relationships between two depended variables are identified and
measured.
Along with this, study explains the SWOT analysis of cited businesses of apparel
industry. By considering this particular non-financial analysis method, strengths, weaknesses,
1

opportunities and threats are identified by the reader which they have in the mentioned market
segment. Beside these all, ranking is given to all the companies in terms of business performance
within industry of cloths and footwear. Further, the present report focuses on critical reflection
under which self learning and benefits of this study in the future are explained. At the last part of
the project, recommendations to the ASOS, JD Sports and Direct Sports companies are provided.
Further, in the suggestion part, strategies provided in order to boost up business performance in
the apparel industry to the cited organisations effectively.
Rationale
The rationale behind conducting the present study is to analyse business performance of
the cited companies like ASOS, JD sports and Soprts Direct in the competition market of UK
apparel industry. In this respective sector, several numbers of the firms operating and providing
cloths and footwear which create cut throat competition. Further, it is necessary to determine
performance level which supports to make proper strategies for the upcoming years. Along with
this, to analyse competition financial and non-financial analysis methods are considered which
are like as ratio, porter five forces, PEST, regression, Altman Z-Score etc. The reason behind
using these techniques only is that, these help to carry out proper and effectual research and
determine effective as well as reliable conclusion (Kapoor, 2014). Moreover, ratio analysis
provides clear outline of the business condition and due to which it is considered for analysing
financial perspectives of the firms.
PEST ANALYSIS AND CSF
PEST Analysis
In order to make analysis of business environment and its condition in the respective
industry there are different kinds of tools and methods used by the company. One of the
important technique is PEST analysis where basically four factors considered which are like
political, economic, socio-cultural and technological (Shabanova and et.al., 2015). Explanation
of such aspects is given as below:
Political factors:
Various number of elements affect to the company under the political environment which
are like rules and regulations and other laws. When government of the UK make changes in any
kind of legal legislations then current business process become change up to the greater level
2

(Khosravi and Matikolay, 2015). For instance: minimum wages of the labour increased by the
government of UK then it leads to increase employees expenses of cited firms. Therefore, total
cost of cloths and footwear increase which create negative impact on the profitability condition.
On the other side, if minimum wage rate declined then such companies will beneficial and able
to earn more profit. Apart from this, European Union create the highest impact on overall apparel
industry. The reason is that, EU provides trade free area to the organisations where any kind of
taxes and tariffs are not needed to pay. Along with this they have freedom in order to export and
import cloths and other apparel items. When EU exit from the British, then such companies not
able to easily enter in the international market and generate profit.
Economic factors:
Another element of PEST analysis is economic which includes financial aspects and
directly affect to the profit generation capability of the apparel industry's firms. In this, basically
factors of the monetary policies are involved which create both negative and positive impact on
the working environment of selected businesses. Under the economic factors, inflation,
recession, interest rate, unemployment policies and other monetary aspects are included. When
any factor among these all gets change then overall apparel industry and its firms affected up to
the higher extent (Ravija, 2016). For example: due to increasing in the inflation rate, prices of
cloths and footwear increase where purchasing power of the local community of UK economy
reduce. Therefore, selling and turnover the cited companies affect in the negative ways which is
sign of profit declining in the industry. Apart from this, if interest rate increases in the UK
economy then company needs to pay more amount on the debt and loan taken by different
financial institutions. It is indication of enhancing indirect expenses and ultimately net income of
the businesses reduce at the end of financial year.
Socio-cultural factors:
To the apparel industry socio-cultural elements also influence up to the larger extent.
Under this, consumer needs and requirements included at the majority level and necessary for the
cited firms to fulfil them. Due to changing in several kinds of the demographic factors, cited
firm's operation and selling department affects up to the greater level. Therefore, revenue and
profitability situations of the selected firms of apparel industry also influenced in adverse
direction. For example: If income of the people or customers increase then living standard will
3

also improve accordingly. Due to this, they will demand higher quality of the cloths and shoes
from the chosen business organisations. Therefore, the management needs to make modifications
in the existing manufacturing procedures along with purchasing high quality of raw materials
(Igliński and et.al., 2016). When the cited firms adopt such kind of changes then overall smooth
functioning affects and costing level also increased. Hence, it can be said that due to occurring
change in the socio-cultural aspects, apparel industry affects.
Technological factors:
In the current era, technology plays a major role in each industry and every company,
which come up with innovations within very short period of time. When the management of
cited enterprises use and adopt innovative technologies at the workplace then at the very first and
foremost they need to provide training to the employees. The reason is that, new technologies
included new and addition features by which workforce not aware. It leads to create expenses or
financial burden on the companies and affect business performance negatively (Gerwick and
Sparks, 2014). On the other side, by adopting new technology the firms able to produce higher
quality of products and wastage will reduce. Henceforth, sales and revenue influenced in positive
direction up to the higher extent and help to ASOS, JD sports and Soprts Direct firms to raise
existing financial health.
Critical Success Factor (CSF)
Those factors which are mandatory to implement at the workplace in order to meet with
the expected objectives and purposes of the firm are called as critical success factors. Further,
CSFs for the cited firms are described below:
 According to political factors, the ASOS, JD sports and Soprts Direct companies are
necessary to use or follow all the available legal rules, laws and legislations in proper and
adequate manner at the workplace. The various laws are like, minimum wages act, anti-
trust, discrimination, employment etc. When these firms follow in the working
environment then able create positive image which is sign of achieve desired goals and
objectives (Ghezzi, Rangone and Balocco, 2013).
 In the economic aspects, the cited enterprises have to reduce the total cost of production
and charge lower prices from the customers.
4

 When all the selected organisations fulfil customer's needs, requirements and preferences
in adequate and proper direction then they will easily able to attract them and boost up
sales and profitability in the apparel industry of UK. Further, CSFs are such as needs and
preferences of the consumers.
 Moreover, as per the technological elements, the ASOS, JD sports and Soprts Direct
entities must adopt and use all the innovative techniques which lead to reduce cost of
production as well as wastage items and increase quality of apparels.
INDUSTRY COMPETITION ANALYSIS
In order to make analysis of competition within industry there are several kinds of the
methods and tools available. In the present study Porter's 5 forces model is considered which is
explained with reference to apparel industry as below:
Illustration 1: Porter's 5 Forces Model
Bargaining power of customers:
Under this kind of factor of competition analysis, customers have power in order to
negotiate with the existing companies while purchasing cloths and shoes. Very basic reason is
that, in the apparel industry, in the cloths there are huge number of the fashions available.
5

Therefore, if the firms not bargain with the consumers then they will switch towards their rivals
immediately (Rajasekar and Al Raee, 2013). In the fashion and apparel industry, bargaining
power of the users or buyers is the higher as compare to other market segments. Along with this,
there are wide range of alternative companies available in the clothing market and due to which
buyers have highly negotiation power.
Bargaining power of suppliers:
In the industry of apparel and clothing, range of fashion is too much high and wide due to
which bargaining power of the ASOS, JD sports and Soprts Direct companies is relatively lower
in comparison to the consumers. Therefore, the suppliers can bargain and negotiate with the
customers at the lower level. In addition to this, cost of input is relatively very low and in
opposite to that bargaining power of the firms is higher (E. Dobbs, 2014). Henceforth, at the
global level, apparel industry has the lower development in comparison to other market sectors.
Threat of new entrants:
As earlier explained that, in the apparel industry, wide range of fashions and innovations
are there. When the potential companies which enter in the market of apparel then have to offer
unique products and garments to the local community of UK (Bush, 2016). When talking about
differentiate and unique items then there is very little opportunities with the new entrants to
provide on the table of apparel market. Moreover, when the new firms enter in the respective
industry then become threat for the ASOS, JD sports and Soprts Direct businesses up to the
higher level. This reason leads to reduce capabilities of the existing apparel firms in order to
generate profit at the end of year.
Threat of substitute products:
In the apparel industry, there is any of the substitute products are available of the
garments and shoes which is one of the very significant and profitable for it (Yunna and
Yisheng, 2014). Due to not having any substitute items, the firms of chosen market able to
generate more sales and earn income in the appropriate direction. On the other hand side, there is
cut throat competition within this industry by which profitability affects adversely.
Existing rivals within apparel industry:
6

In the clothing market, competition level is at the very huge extent by which the selected
business need to provide highly differentiate as well as unique garments to the people of UK
country. In the cloths and footwear, wide range of innovations come into consideration on daily
basis by which it can be said that, there is cut-throat competition (Sutherland, 2014). Further,
those businesses which currently operate in the apparel industry of UK lead to influence ASOS,
JD sports and Soprts Direct firms in negative direction.
COMBINED RATIO ANALYSIS
In order to assess performance of the companies in particular industry there are different
kinds of measurement used by the management. Among several kinds of the models of
identifying business performance, basically financial ratios and non financial measures are the
highly important (Vogel, 2014). Further, such kinds of analysis of ASOS, JD sports and Soprts
Direct entities are explained below:
Financial Ratio Analysis
Profitability ratios:
Table 1: Calculation of profitability ratios
Profitability ratios Formula Name of companies
ASOS JD Sports
Sports
Direct
Gross income 722 884 1285
Net sales 1445 1822 2904
Gross Profit Ratio
Gross income / Net sales
*100 49.97% 48.52% 44.25%
Net income 24 98 277
Net sales 1445 1822 2904
Net Profit Ratio Net income / Net sales * 100 1.66% 5.38% 9.54%
7

ASOS JD Sports Sports Direct
0.41
0.42
0.43
0.44
0.45
0.46
0.47
0.48
0.49
0.5
0.51 49.97%
48.52%
44.25%
Gross Profit Ratio
Illustration 2: Gross Profit Ratio
ASOS JD Sports Sports Direct
0
0.02
0.04
0.06
0.08
0.1
0.12
1.66%
5.38%
9.54%
Net Profit Ratio
Illustration 3: Net Profit Ratio
From the above graphs it can be found that ASOS business entity is able to generate the
highest GP ratio at the end of FY 2016 which is 49.97% in comparison to the other businesses.
Same ratio of JD Sports and Sports Direct is like 48.25% and 44.25% in which the previous
entity able to perform better in the apparel industry of UK.
When looking at the column chart of Net Profit Ratio then it can be analysed that, Sports
Direct enterprise has the highest performance in the industry as value is such as 9.54%. Apart
from this, NP ratio of ASOS as well as JD Sports entity is like 1.66% and 5.38% respectively
8