Mike Ashley’s Fraser Group finally snapped up Studio Retail late last week.
Administration isn’t the way the Sports Direct tycoon wanted to acquire Studio – Frasers’ impassioned statement which slammed the etailer’s management for overseeing its demise made that clear – however he’s had his eye on the business for some time.
The sports magnate first started building his stake in Studio, then called Findel, back in 2015. Investec retail analyst Kate Calvert says his interest was originally focused on the business’ online football shirt seller Kitbag as he wanted to grow Sports Direct’s ecommerce sales.
However, Findel shunned Sports Direct’s attempts to buy Kitbag and instead sold it to US firm Fanatics in 2016.
Rather than retreat from Findel after his unsuccessful bid, Ashley instead grew his stake to 30% and eventually mounted an £140 million takeover bid for the entire business in 2019 that shareholders rejected.
But what does the retail maverick see in Studio?
As veteran retail analyst Nick Bubb points out, “it doesn’t exactly fit with its elevation plan”.
For the past four years, Frasers Group has focused on its ‘elevation’ strategy, which aims to lift its offer by investing in a more upmarket store experience, digital and product.
Ashley has spoken of his ambition to transform his core Sports Direct business, which was built on a ‘pile it high, sell it cheap’ ethos, into ‘the Selfridges of sport’.
As well as investing in improving Sports Direct’s offer, Ashley has also expanded his portfolio into more upmarket brands, which now includes House of Fraser, designer fashion chain Flannels, and a 15% stake in Hugo Boss.
By contrast, Studio Retail targets lower income families that rely on credit payments. A quick visit on its website shows a homepage emblazoned with money off deals: ‘Save 50%’, ‘The Big Save’, ‘Tick Tock:Limited Time TV Deals’, ‘When they’re gone, they’re gone’. Hardly an “elevated” message.
READ MORE: Studio Retail: What went wrong?
Ashley is a fan of cross-selling across his vast retail portfolio. For example, the soon-to-open Sports Direct flagships in Manchester and Birmingham will house USC, Evans Cycles and Game.
Calvert points out there is little opportunity to cross-sell Studio products across the wider Frasers Group or vice versa due to the different target audience.
However, some of Sports Direct’s cheaper own brands – think Donnay and Lonsdale – may be sold via the etailer. In fact, Sports Direct has sold on Studio in the past.
So, if product and brand isn’t the big pull, what is drawing Ashley to Studio?
Bubb believes that Studio’s credit offer, a big driver for its less affluent customers, is the big attraction for Ashley, who has no real strength in this area.
Frasers Group acknowledged this when it revealed it had snapped up Studio. “As Frasers Group seeks to elevate its customer journey including a flexible repayment proposition, the acquisition of Studio Retail will provide Frasers Group with expertise and synergies that will accelerate this ambition,” it said.
Flexible payment options are increasingly important to consumers with ‘buy now, pay later’ providers such as Klarna, Clearpay and Laybuy prevalent across retail websites and in-store.
Adding a credit option to some of Frasers Group’s more upmarket brands such as Flannels, where designer items have four figure price tags, could result in additional sales.
It is also a lucrative area for the retailers that run their own credit services. It is a big contributor to businesses such as The Very Group’s bottom line and even forms a part of the turnaround plan of electrical’s retailer Curry’s.
Therefore expect Studio’s credit offer to be rolled across the wider Frasers Groups, from Flannels to House of Frasers and Sofa.com.
But is buying the entire Studio business just to adopt its credit prowess a bit extreme?
“Even if it doesn’t fit in with the wider business, he got Studio for a steal,” points out one city analyst, who highlights that just over two years ago Ashley was prepared to pay £140 million for the business that he snapped up for £26.8 million last week.
“As of the end of January, it was going to make more than that in pre-tax profits,” he adds.
Indeed, it made more than £40 million in its last financial year.
If Ashley can get Studio on a level financial footing and get rid of the excess stock it holds, the acquision may well be another shrewd bit of business for one of retail’s biggest dealmakers.
Click here to sign up to Retail Gazette‘s free daily email newsletter
