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Alarm Bells For Sports Direct International Plc… But Christmas Bells For Conviviality Retail PLC

Stock selection has become harder over the past 12 months, but it’s by no means impossible. I want to show you two companies today that normally fly underneath the radar but have recently made headlines. They are two companies that are worth your attention.

What is Sports Direct playing at?

Have you ever been into a Sports Direct (LSE: SPD) store? It’s nothing to write home about. My late father used to say it’s the stockbrokers that need to have the fancy offices, everyone else is just trying to keep overheads down.

Mike Ashley, who still controls Sports Direct, has always just been keen to get customers through the doors. He does that with a cheeky little strategy of selling inexpensive clothing items next to expensive ones. For example, he sells the brands he owns at cut price, right beside adidas and Nike’s products. It’s a premium-discount store… or something like that??

Whichever way you cut it, adidas doesn’t appear too keen on the idea, nor does it like the ‘cheap’ look of Mr Ashley’s stores. It’s not just the layout of the stores that’s done on the cheap, though. Last year it was revealed as many as 20,000 of the company’s part-time employees were on zero-hours contracts. My point here is that the company’s trying to be light on its feet.

2013 was a particularly cheerful year for the company as its shares rose 86% and sales lifted more than 20%. The retailer’s share price took a backward step last year, but now looks to be back in favour again, which is why Mike Ashley’s latest move has raised so many eyebrows.

Mr Ashley sold more than £100 million worth of Sports Direct shares last week through a placing handled by Goldman Sachs. That took his stake in the sportswear retailer from about 58% to just over 55%. As little as two years ago, he held 68% of the equity.

Some City analysts are speculating it’s related to the derivatives contracts that the company bought into last year involving Debenhams shares. Mike Ashley now has two derivatives deals that afford Sports Direct the right to take a 13% stake in Debenhams. What else can the entrepreneur do with the money?

Others have guessed that Mr Ashley is seeking to get more involved with Rangers, the Scottish football club.

This Fool believes it boils down to how much faith you have in Mike Ashley. Plenty of retail managers are happy to accept low growth and stable dividends, but Sports Direct doesn’t offer that (especially dividends). Instead, it appears Mike Ashley is playing with what he has for now in an attempt to build an empire. Will Sports Direct benefit from that? Of course. Can Mike Ashley’s world grow from here? That’s anyone’s guess.

A Merry Christmas for Conviviality Retail

Over the Christmas trading period the likes of Tesco and J Sainsbury were mourning the loss of customers to the discount stores Aldi and Lidl. There was, however, another company that was making headway… Conviviality Retail (LSE: CVR).

According to The Guardian, a smartphone app and deep discounts on wine and beer helped increase sales for the retailer. In the two weeks to the 4th of January, sales at franchise stores rose 1.2% and total sales rose 2.6%. Some of the credit has gone to Bargain Booze’s app. It’s been downloaded 4,000 times. It could be that.

This Fool doesn’t think it’s rocket science. Conviviality’s strategy is simply a step ahead of Tesco’s. It’s already closed around 100 stores over the past 18 months and it seems that has helped to bring down costs. Combine that with a focus on convenience and heavy discounting and you have a nice platform to boost sales. Conviviality is trying to achieve further growth this year by appealing more to women and by boosting its online capabilities — again making life easier for customers.

British consumers have said quite clearly they want convenience and value. Some retailers are now successfully responding to that.

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David Taylor has no position in any shares mentioned. The Motley Fool UK has recommended Sports Direct International and owns shares in Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.