Each week, Just Style’s editors select a deal that illustrates the themes driving change in our sector. The deal may not always be the largest in value, or the highest profile. But we select it because of what it tells us about where the leading companies are focusing their efforts, and why. We pick apart the deal itself, and the industry theme behind it. This new, thematic deal coverage is driven by our underlying Disruptor data, which tracks all major deals, patents, company filings, hiring patterns and social media buzz across our sectors.

Inside the JD-GMG franchise deal

Earlier this week, JD Sports announced a franchise agreement with Dubai-headquartered wellbeing company GMG that aims to expand its presence in untapped markets.

As part of the 10-year agreement, GMG will establish approximately 50 JD Sports stores by 2028, primarily in the United Arab Emirates, the Kingdom of Saudi Arabia, Kuwait, and Egypt. This move supports JD’s plan to open between 200 and 300 new stores annually over the next five years.

GMG is said to possess extensive experience in sports and fashion retailing with a diverse portfolio of over 500 GMG Sports stores across seven concepts, including its flagship brand, Sun and Sand Sports.

Under the franchise agreement, customers in the Middle East will get exclusive access to the latest styles from leading global brands such as NIKE, adidas, New Balance, and Under Armour as part of its unique multi-brand, omnichannel proposition.

JD Sports believes GMG is well-positioned to introduce its brand to the region and describes it as being home to some of the world’s most innovative shopping destinations.

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Here’s why the deal matters

JD has set out ambitious growth targets and there are some big promises it needs to fulfil for its shareholders.

Last week the group announced it is firmly on track to achieving £1bn ($1.27bn) in profits for the current financial year thanks to its continued sales growth in recent months.

JD Sports is looking at various avenues to seize this growth, from acquisitions to grow its footprint, to divestments that allow it to raise cash and boost efficiencies.

Last month JD Sports proposed a €520m ($572m) acquisition of French sports brand Courir, a move that would expand its footprint in Europe. Courir, majority owned by Equistone Partners Europe, is a leading sports footwear and apparel player, with 313 stores across six countries in Europe.

And in February, it sold five fashion brands to Flannels and Sports Direct owner Frasers Group for £47.5m to focus on its core portfolio,

So it would appear the new franchise agreement forms part of that ambition to secure growth, fast.

JD Sports believes the Middle East is a market ripe for penetration for the sporting goods and athleisure sector due to its increased focus on health and wellness, which has accelerated since the pandemic.

In fact, Data Bridge recently forecast the sports apparel market in the region will grow at a compound annual growth rate of 4.8% to reach US$23.2m by 2029.

Speaking to Just Style, Alice Price, associate apparel analyst for GlobalData explained the sportswear market in the MENA region is currently outperforming Western Europe and therefore “represents an opportunity for growth in a largely unpenetrated region.”

It wouldn’t be the first time a major UK fashion name has explored the franchise route to expand its presence overseas. In 2021, Boohoo announced it would sell its brands in stores across the Middle East via franchised Debenhams stores and online.

The agreement came as a result of a deal with Kuwait’s Alshaya Group which already holds the franchise to operate Debenhams stores in the region and means it would have exclusive rights to operate its shops and websites in Kuwait, Saudi Arabia, United Arab Emirates, Bahrain, Egypt, Oman and Qatar.

The move came shortly after Boohoo rescued Debenhams out of administration.

While Boohoo reported a substantial dip in revenues across the US, UK and Europe ranging between 6-19%, revenues in the rest of the world which includes its Middle East operation, only fell 2% for the year ending February 2023.

At the time Boohoo said it had seen successful growth of marketplace and wholesale sales to its partners in the Middle East.

Speculating on why JD might have opted for the franchise route, Price observes: “GMG has strong knowledge of the MENA region, its consumers, and the cultural dynamic, making it well placed to promote and grow the JD brand in the region and curate a product range that will resonate with the consumer base.”

Key takeaways for the fashion industry

While it is the first franchise agreement for JD Sports, it is unlikely to be the last, a spokesperson for the firm told Just Style exclusively.

“We are excited by the opportunity to explore franchise partnerships as an avenue for further store growth in underpenetrated markets, leveraging our premium sports fashion offer and bringing our proven proposition to more customers worldwide. A franchise model allows us to have more flexibility, is capex light and draws on the expertise of local operators to deliver the best possible offering for customers.”

In fact, JD Sports believes growth through franchise opportunities to be one of the most significant opportunities for it along with international omnichannel development, brand partnerships and a strong balance sheet.

“Earlier this year we announced our intention to increase our market share in strategic markets globally through both acquisitions and franchising, and we continue to look for further opportunities to grow the business.”

For JD Group, franchising is undoubtedly an attractive prospect as it presents a relatively risk-free method of growing its brand fast. Of course, there are a few considerations to be made such as will such an established brand in the UK be represented and delivered as successfully under a franchisee? Also it stands to make less money via the franchise route than it would if it opened company-owned stores in the region.

But then there is the list of pros, of which the top point is likely GMG’s extensive experience in the Middle East market which will help to ensure its fast and successful growth in the region.

And, as times get tougher for fashion brands in the UK with consumer discretionary income increasingly squeezed, it is likely more fashion brands will opt for the franchise model, particularly when it comes to realising growth in the MENA region.

Price concludes: “The apparel industry has been experiencing strong growth in the MENA region in recent years, driven by the younger generation who are increasingly fixated with fashion and the latest trends, and receptive to Western forms of dressing. As the UK and other key regions continue to suffer from economic challenges, franchising in the MENA region will prove appealing to many brands seeking to expand into more prosperous regions.”