Decathlon, the financial implications of its Transition Plan

Decathlon, the French sports and leisure multinational retailer, is carrying out an in-depth overhaul of its operations. Its ambitious ‘Transition Plan’ aims to ensure a "more profitable, more digital, more environmental" approach.

The Group has significantly revised its positioning by streamlining its product portfolio. It plans to remove around 30 of its 49 existing brands. Among the brands which will disappear are Artengo (racket sport) and Elops (cycling), meant to be absorbed by brands such as Quechua (outdoor sport), Domyos (fitness and combat sport) and Decathlon (multisport). The aim is to master the digitalisation of the remaining brands, to simplify the customer experience while maintaining an affordable range at under 20 euros in the face of price inflation, and to reduce stock-related costs.

In terms of digitalisation, the proportion of e-commerce sales has fell from 20.8 percent in 2021 to 16.8 percent in 2022. This result falls short of the expectations of the new managing director, Barbara Martin Coppola, who wants to overhaul the website to develop online sales. To this end, she has set up a Green IT team, dedicated 100 percent to finding a more sustainable model for the IT department. It should be noted that if we look at a more extended period, i.e. 2019-2022, digital-related activities have increased by 135 percent, thanks in particular to investments in logistics. In fact, Decathlon is continuing its logistical efforts to strengthen its local production and, through this, its resilience in the face of supply difficulties linked to geopolitical, macroeconomic and environmental hazards. For example, the "Made in Europe" ratio for retail sales in Europe had increased from 25.6 percent in 2021 to 27.2 percent in 2022. Decathlon thus tends to be more responsive to demand and boost its circular economy. The group also revised its supply chain strategy by opting for rail transport to deliver its products from its Wuhan warehouse to northern Europe’s ones. While this option optimizes delivery times and would save 36 percent in CO2 emissions compared with road or sea transport according to the group, it could eventually dissuade Decathlon from favoring its Made in Europe production.

Circular Economy: Rental, Take-back and Repair

Through its Transition Plan, Decathlon is implementing circular economy solutions such as product rental, take-back and repair. These circular initiatives represented 1.75 percent of the Group's sales last year, a figure that was 22 percent higher than in 2021.

The rental system at Decathlon is growing strongly, with 187,888 product rentals in 2022, compared with 97,474 in 2021. Decathlon offers three types of rentals, including short-term rental, which allows customers to use products such as mountain bikes, paddles, or snowshoes for a few hours, several days or a season. Through short-term rental, the Group aimed to generate sales of nine million euros in 2022, compared with five million euros in 2021. The main thrust of the Group's rental strategy development remains monthly rental by subscription for a minimum of one or three months. The number of contracts signed in France rose sharply, from 872 in 2021 to more than 20,000 in 2022. Long-term subscription, with a commitment period of between 12 and 36 months, is currently being used as a tool for analyzing customer needs and requests.

Decathlon is also developing the sale of second hand products, enabling users to resell their items directly in shop or online. Customers can either receive a voucher or a payment directly into their bank account in exchange for taking back their products in stores, or they can return their item online, describing its condition and receiving a proposed buy-back price. More than 3,000 products have been resold via the Decathlon online Marketplace. In total, 159,790 items were sold as trade-ins in 2022, representing 0.25 percent of the Group's total sales, compared with 87,000 in 2021.

30 percent of products sold by Decathlon are classified as recyclable and 23 percent of sales are generated by Ecodesign products. This qualification, developed by Decathlon through tests carried out in collaboration with Adidas, includes criteria such as the repairability and durability of a product. The group's objective is to have 100 percent Ecodesign products by 2026. While the implementation of the Transition Plan will, according to sources, result in the redundancy of almost 600 employees, it will also lead to the recruitment of 500 technicians between now and 2026 in order to develop the repair system.

Integrating ESG criteria into its financial balance sheet

Since 2020, Decathlon has been integrating ESG (Environmental, Social and Governance) criteria into its financial value and its bank credit lines.

The "Ecodesign product sales" and "Circular sales" indicators have been included in share ownership since October 2022. They now form part of the variable remuneration of the company's managers. The quarterly bonuses of certain leaders include a bonus-malus system linked to Ecodesign product sales for the Services, Sports & Processes and IT leaders, and to circular sales for the Stores and Logistics leaders.

Decathlon has also developed an impact credit project in partnership with EthiFinance, an extra-financial analysis agency, which links financial value to long-term investments that comply with ESG criteria. Nine banking partners, including Crédit Agricole CIB and Natixis, have incorporated these ESG criteria into their credit agreements with Decathlon. As a result, more than 70 percent of the bank loans taken out by Decathlon in 2022 have been subject to ESG criteria analysis, with the aim of reaching 100 percent by 2025. This initiative enables Decathlon to benefit from more advantageous interest rates, and for the banks, to finance more responsible activities.

Linking the company's environmental performance to the remuneration of its managers is a concrete and powerful lever to ensure value creation as well as an effective management of extra-financial projects. While these circular projects represent today a slight share of Decathlon’s balance sheet, it would be interesting to follow how the group will deploy them in the future.