Retailer Brand Policies: Decathlon Case Study (2/2)

International channel management and retailing

BearingPoint as the partner of the ESCP “Retailing 4.0" Chair is committed to contributing to building bridges between the academic world and companies. As part of this engagement, the BearingPoint Retail, Luxury and CPG team mentored the writing of a series of articles of ESCP MSc students and shared insights on major retail stakes. Enjoy your reading!

Why did Decathlon France stop collaborating with major international brands? Was it a mistake?

In 2018, Decathlon in France made a significant change in its strategy to stop collaborating with major international brands like Adidas, Nike, Puma… The decision made only for the French market was taken to transform Decathlon into “THE Sport Retailer”. Why?

We believe that Decathlon back in 2018 was aiming for cost leadership with differentiation of their own brands, with no excessive costly branded products. Consequently, they terminated the collaboration. Potentially, producing and selling their own products could have presented some advantages (diminution of costs, better control of the supply chain, allow Decathlon to answer more closely to customer needs…) and Decathlon wanted to capitalize on it to overcome the competition.

Vice versa, distributing global brands conflicted directly with their wish to offer the best value for money. Indeed, selling global brands is often more expensive and poses a potential threat of cannibalization to Decathlon’s own products. Via the terminated collaboration, Decathlon aimed to increase its sales and gain market share. This strategy was also intended to valorize Decathlon products and incentivize clients to try them and in fine thanks to their quality, adopt them. This significant action was seen by the direction of the company as a way to stand out as “the retailer for Sport”.

However, in such a mature market as France, customers have already known Decathlon not only as a sport equipment retailer, but also as an international brands distributor. Customers are the ones who Decathlon should have tried to satisfy and keep up with demands in accordance with the customer-centricity model, not limit customers’ choices and options. By taking such a daring decision, their global revenue could suffer from it with a decline of 5% in sales in 2018 despite a favorable environment. Later in 2019, to overcome those difficulties, the company decided to reunite with the international brands to re-distribute. But this change would be implemented locally to better meet demands. In such a dynamic environment of international retail where customers demand for various brands and products, the solution should be having an open mindset, welcoming other partners so that all involved brands or retailers can meet specifically segmented demands.

The decision also represented an opportunity for Decathlon French rivals, Intersport and GoSport to gain market share and increase their revenue. They took the opposite decision than the market leader and focused their offer on international brands which represented more than 70% of their offering. In 2018 and due to a favorable environment (helped by the football world cup in which France won for the second time in its history!), they managed to boost their sales by more than 9.1% for Intersport and 8% for GoSport where Decathlon could not.

Why did Decathlon decide to expand towards higher quality and higher demands?

The brand expansion became the next level of development and growth. Mr. Grandgeorge stated that thanks to the existing capabilities such as know-how, obtained resources, and legitimacy to speak up for many sports, Decathlon can level up its model to provide more specialized products. The current position allows them to concentrate on the high quality of products for reasonable prices as the priority focus area is value-for-money. The continuous process of product specialization and product segmentation of own brands has been a path followed by Decathlon in the last ten years. The sports retailer introduces the labels defined by sport to become hyper-specialized and closer to sport practitioners (Mira, 2018).

The creation of smaller and more responsive concepts enables them to respond more concretely to mass customer demands.

For example, the Nabaiji brand which is focused on pool sports creates a new line specifically for aquafitness. The Domyos brand, which is dedicated to dance, gymnastics and yoga, is segmented into six sub-categories to include all dance styles and directions. The reliance on its own-brand range and the development of different pricing segments contributed to the possibility to keep the prices at the lower end. The new products with higher quality and extensive improvements could also meet the demands of the very-high-end customers : professional athletes. The professional athletes tested and used the products for quality assurance, feedback and even further progression. There was a professional marathoner contacting Mr. Grandgeorge for his approval of using Decathlon’s running shoes for sixteen consecutive marathons, instead of asking for funding. With three pairs of different shoes, the marathoner participated and then shared with Decathlon some feedback, suggestions and experiences. We believe this subtle detail speaks up for Decathlon’s dedication towards quality and improvement of their new products as well as the trust from professionals in Decathlon.

Despite the smart concept of this strategy, it might take sustained effort and time to reach a greater spectrum of potential customers and arouse their interest in the brand. The good quality and relatively low prices are two notions that are hard to imagine simultaneously in one product and which can raise doubts as a result. The development of new brands may lead to confusion and frustration of consumers. Potential customers may feel lost and puzzled while choosing a “right” product among a broad spectrum of brands which look similar at the first sight. Focusing on brand expansion strategy may arouse increased expectations towards Decathlon and hurt its brand image. For a brand, not meeting customers’ expectations can cause brand delusion, leading to loss of value.

Limits

• Confusion and frustration of consumers for product selection
• Arousal of over-expectations towards Decathlon
• Potential damages to brand image for over-expectations
• Brand delusion & value loss