Interim Insights: A CFO’s insight into a UK retail success story
Daniel Wood, Consultant, Consumer and Retail Practice, spoke to Neil Greenhalgh about his career at JD Sports spanning 19 years.
How did you get into a career in finance?
I went to Edinburgh University where I studied geography, so I don’t have the usual academic background in accountancy, business studies or economics. Whilst my degree wasn’t relevant, I did start to become interested in finance at university firstly via a treasurer role in one of the sports clubs and then as the treasurer of the wider sports union umbrella organisation. After doing that, it seemed logical to apply to the accountancy firms for a graduate role and I was lucky enough to get offered a job by KPMG at their Preston office.
What are you most proud of during your tenure at JD Sports?
It would have to be the way in which we turned a small UK focussed business into the leading global sports retailer. That development was done at pace, but it was very well controlled in terms of cost and consistency of retail execution which wasn’t easy as different countries required different skills. For example, the US necessitated the rapid turnaround of an existing underperforming business whereas Europe and Australia were more greenfield developments.
What are the obvious and the less obvious differences when moving into a listed status?
Obviously, with the additional public reporting requirements then there is increased scrutiny of your business from investors and the media and so there is a greater importance / emphasis for the CFO in managing the ‘story’. Less in the public view, there is also increased regulatory scrutiny / interaction which needs additional resource.
When launching a business/brand in the US what advice would you give to a CFO about to embark on the same journey?
From a business perspective, the US market for sports retail doesn’t operate in the same homogenous way as other markets. What I mean by that is that in the UK or Europe (for example), consumers will largely shop anywhere whereas in the US consumers tend to be more loyal to their mall or neighbourhood so if you want to cover the market then you need a presence in both sectors. From a CFO perspective, I will highlight three immediate things to be aware of:
1. Sale & Purchase Agreements are structured differently and can be a tough read so make sure you have a lawyer who has experience of UK clients and can ‘translate’ accordingly.
2. There isn’t the same appetite from banks for unsecured lending based on your cashflows with most funding (in retail businesses anyway) secured on the asset base which can impact on some of your operational decisions e.g. timing of stock intake.
3. Make sure you have someone good locally in tax who understands the different federal and state tax rules.
What is the biggest mistake you have made and what did you learn from it?
We didn’t develop a warehouse in Europe soon enough. Consolidating the stock in the UK was the right thing to do in terms of a) cost and b) stock efficiency but, in the post Brexit world, the loss of free movement of goods has added significant time on to the delivery times for getting product into Europe. This means that the service proposition, both for stores and online, isn’t as strong as it should be currently. What did I learn? Don’t assume that governments will look after the needs of business – assume the worst and you won’t be disappointed! Also, don’t let accountants make all the decisions.
What are you most passionate about when it comes to leading a finance function?
A few things:
- Heart of the business – Finance should always want to be at the heart of the business with commercially minded people who can build relationships and partner closely with colleagues in buying, retail and digital (to name a few!) to help understand / interpret business performance and challenge thinking.
- Consistency – you should be able to compare the performance of different stores around the world using the same metrics.
- Detail – A retail business is an aggregation of individual p&ls all of which are individually important and deserve attention.
- Simplicity – keep the key metrics simple.
- Speed – data goes stale quickly.
- Focus on outturn – constantly revisit expected outturns to ensure no surprises!
What does sustainability mean for you in the finance field?
Finance has a big role to play in sustainability. For example, understanding and being able to influence energy efficiency is largely dependent on the acquisition, interrogation and then reporting of data. Finance can use its standing data on stores such as regions, trading square footage and trading hours to produce meaningful KPIs and benchmark stores accordingly. Finance’s role will only increase with reporting against Science Based Targets and the new EU rules on Corporate Sustainable Reporting.
1. Financial Strategy:
Can you outline the financial strategy you've implemented to navigate the challenges faced by the retail sector in recent years?
The key word is agility. The frequent changes in channel brought about by Covid as stores closed and then re-opened tested the operational infrastructure to the maximum. None of us knew how robust the consumer footfall would be long term so you needed to make sure that you could service the consumer in the way that they wanted to be serviced.
What key financial metrics do you prioritize in evaluating the company's performance, and how do you ensure their improvement?
There are different metrics for different parts of the business but the key ones in terms of stores are LFL sales growth, product sales density and overall store contribution %.
2. Technology and Innovation:
How has technology played a role in reshaping financial operations within your retail company?
JD is a very data rich business, but you need to be able to interpret that data quickly and having the right technology to do that is important.
What innovative financial approaches or technological advancements have you implemented to enhance efficiency and drive growth?
There has been a lot of advancement in recent years on payment types. These generally start as digital only payments which we then need to adapt for physical stores.
3. Risk Management and Resilience:
How do you approach risk management within the retail sector, especially considering market fluctuations and consumer behaviours?
Ultimately it comes down to the interrogation of lots of data interrogation – particularly around product performance. You are always looking at trends on sell through rates and densities per metre in individual stores. If you see a product which isn’t selling through as expected, then you need to deal with it quickly either through promotional activity and negotiating returning the product. Covid forced the business to be more agile in terms of dealing with customers changing their preferred channel although, ultimately, customer footfall into stores has proved incredibly resilient.
Can you share an instance where your financial strategy helped the company weather a challenging economic environment?
JD has always been very risk averse in terms of debt and gearing so we entered the Covid store closure period with significant headroom in terms of funding. This enabled us to take a slightly longer-term view than others may have done, and we used the store closure period as an opportunity to invest in systems / processes.
4. E-commerce and Omnichannel Strategies:
How has the shift towards e-commerce affected your financial planning and approach to revenue generation?
The shift has largely now levelled off and the mix of stores / online is similar at 70/30 in the two most material markets of UK and US. Covid taught us to be as flexible and channel agnostic as possible.
What efforts have been made to create a seamless omnichannel experience, and how has this impacted financial performance?
One of the big innovations has been on loyalty so that we know what the customers are buying in store as well as online. This has necessitated some investment in cost and a small investment in margin, but the output is additional data that allows us to be more personal in terms of the communications with the customer.
5. Sustainability and ESG Initiatives:
How do you integrate sustainability and Environmental, Social, and Governance (ESG) principles into your financial strategy?
Most importantly don’t view them as a problem – see them as an opportunity. For example, energy efficiency equals reduced cost. Further, young consumers are increasingly conscious of the stories behind the production so, yes, there is some cost investment required (e.g. enhanced traceability of ‘Better Cotton’ comes at higher unit cost) but there is a positive story to tell which resonates with consumers.
Have there been measurable financial benefits from your sustainability initiatives?
Reducing energy usage is very much ‘win win’ as it equals reduced cost.
6. Investor Relations and Stakeholder Management:
How do you communicate the financial health and strategy of the company to investors and stakeholders?
Regular communication / meetings. After each result or trading statement we would speak individually to top shareholders and on a Group basis to smaller shareholders.
What steps do you take to maintain strong relationships with shareholders and manage their expectations?
Regular communication / meetings. We always preferred face to face meetings and so would visit our top shareholders in Europe and US at least once a year. Other than that, the key was always no surprises, so we reforecast the whole business on a ‘bottom up’ basis each month. We would typically be more cautious at the start of the year and then hopefully steadily upgrade as you got more confident about the outturn – ultimately though more than 20% of sales were done in December so there was always some uncertainty until you had gone through that period.
7. Talent and Team Management:
What are the key qualities you seek when building a finance team in the retail industry?
People who care about detail and who can view their own shopping experiences through a commercial lens.
How do you nurture talent and encourage innovation within your finance team?
We liked to rotate people between teams, so they got experience of different elements within finance. Several people also joined directly from stores – it was always really rewarding when people joined from stores as you got a good insight into the behaviour of the customers and what they were asking for.
8. Adaptability and Future Plans:
How do you adapt financial strategies to respond to rapid changes in consumer behaviour and market trends?
Operationally, you need to build flexibility into your business model and, commercially, you need flexibility in how you deal with suppliers. As a retailer of third-party brands then if a product isn’t working it isn’t in the interests of either the retailer or the brand to start discounting heavily – brands need to deal with the product through other channels.
What future financial goals or plans do you have in place to sustain growth and competitive advantage in the retail sector?
Greater insight into individual consumer behaviour through the data which can be generated through the loyalty scheme.