Frasers Group has a long history of sniffing out deals. Over the years the group that was formerly known as Sports Direct, has bought an eclectic range of businesses – often out of administration – such as House of Fraser, Evans Cycles, Game and Jack Wills.
However, it’s last few acquisitions have been less scattergun. Since the turn of the year it has a throng of online retailers: Studio Retail, ISawItFirst and Missguided.
It is also close to taking control of Australian online retailer MySale, in which it now owns 66% of shares.
And the business, which is now run by Mike Ashley’s son-in-law Michael Murray, is not stopping there.
Earlier this month it took a 4.5% stake in N Brown Group, which owns brands including Simply Be, JD Williams and Jacamo, and last weekend snapped up a 5% stake in Asos, becoming its fourth-biggest shareholder.
But what is Frasers’ gameplan? Is it planning to create an online empire?
Not an online empire but an omnichannel one, says retail consultant Graham Soult.
“When Frasers Group invests in these online brands, it does things with it in bricks and mortar too.
“If you go to any House of Fraser store these days, you’ll see a Sofa.com concession in there,” he says, using the example of the furniture etailer that the group acquired back in 2019.
“It’s a business that almost more seamlessly than any other is building this portfolio of offline and online brands, and then mixing it all up together,” adds Soult.
Financial analyst at investment platform AJ Bell Danni Hewson says that Frasers is looking to ape omnichannel bellwether Next.
“It’ll be looking to emulate what Next has done because that has been incredibly successful,” she says.
Hewson says that like Next, Frasers Group has its eye on becoming an online department store and through its hybrid online and stores model can maximise its margin opportunity and take some of the cost out of servicing online.
“Frasers Group has got a really smart business model and an opportunity to use its warehouses and storefronts as sort of post offices for people to drop stuff back off,” explains Hewson.
“Frasers Group can avoid some of the pitfalls that Boohoo and Asos have had because it can provide people with other options for returning item.”
Will its online empire succeed?
But is it a risky time to make big investments online at a time when ecommerce businesses across the spectrum are crashing?
Over the past two weeks, Eve Sleep has plunged into administration while Made.com is currently teetering on the brink.
However, experts say the shift to digital,which accounted for more than a quarter (26.4%) of total sales last month according to ONS data, is here to stay.
“Despite the post-pandemic slowdown in online sales, it isn’t going away. Over time online will continue to increase its overall share of retail sales,” says online retail expert Martin Newman.
Hewson agrees: “For Frasers, the move online gives them more access to more consumers. The more consumers they’ve got their products in front of, the more likelihood that they’ll get a share of spend.”
Backing online may still make sense but can be the same of Frasers’ eclectic online retail group?
So far, the retail group has snapped up value retailer Studio Retail, which leans on its credit offer and targets mums on a budget, whilst young fashion etailers Missguided, which it rescued out of administration, and ISawItFirst.com appeal to the 16 to 29 trend-conscious shopper.
Add to that MySale, which sells cut-price goods to shoppers Down Under.
Does this combination of brands really mesh and how do these somewhat value brands fit with boss Murray’s elevation strategy?
Soult admits its a bit of a hotchpotch.
“Fraser’s Group is quite a quirky beast – it does think in its own way. You might think, why on earth is it building this empire? But it seems to actually work,” he says.
Afterall, the group’s current portfolio of brands is a somewhat eclectic mix of brands, many of which it has picked up on the cheap.
Despite, its focus on elevation, the mix of House of Fraser, Game, Evans Cycles, Jack Wills and Sports Direct points to an approach that seeks to cover the widest possible range of consumers rather than being a highly targeted offering.
Hewson has an interesting take on Frasers’ acquisition strategy. “It’s always kind of felt like Mike Ashley, and now the new CEO, are playing Monopoly. They’ve been buying up the bricks and mortar, and now they’re playing virtual monopoly,” she says.
There is also a healthy dose of opportunism in Frasers Group’s acquistion.
“The view that Frasers Group is taking is that maybe some of these brands are going through a rough patch, but actually, there’s some equity in what they stand for,” says Soult.
But will this slightly hotchpotch group of brands propel growth at Frasers? Soult believes so.
“Fraser’s has a quirky approach to acquiring things but when you put it all together, and you package them up, whether that’s an online space or an offline space, it seems to work quite well in building a combination of brands that gives it a distinctive offer,” he says.
“Not everything for this group has worked – it lost millions in building a stake in Debenhams – and not everything it does this is right, but sometimes you have to take the gamble.
“It can fail, but other times it can work quite successfully. I would much rather businesses be investing, acquiring, and evolving rather than sitting still.”
Ultimately, Newman says if Frasers can make the new online brands it has acquired profitable it will boost the group’s bottom cap and grow its share price.
He says: “Frasers Group has already proven itself very adept at acquiring distressed assets and making them profitable partly through economies of scale that the size of its group provides as well as through investment and infrastructure.”
Meanwhile, he believes that as it ramps up its digital acquisitions, this will only increase.
“The more brands that Frasers add to their portfolio, the more it can maximise economies of scale across the value chain.
“It can leverage logistics, technology, supply chain, customer service and other parts of their operation to good effect. And importantly, it can also extend customer lifetime value by potentially broadening the brands customers buy into.”
Has Frasers got talent?
Frasers Group talent and rebuilding businesses and boost profitability is undoubted. But, up until this point it’s success has been largely in bricks and mortar businesses.
But does Frasers have the ecommerce nous to succeed in the highly competitive online world?
Newman believes Frasers were “a little behind where they could and should be with ecommerce”.
“To some extent, investments in these brands enable them to play catch up, particularly when they acquire them as they gain deeper category experience, skills, and capability,” he adds.
Hewson agrees that Frasers needs to bolster its expertise in ecommerce.
“It needs to bring in some of the talented people from the likes of Asos to make sure that that the online shop window is as good as the Flannels actual shop window.
It needs to make sure that what its offering online, is just as easy to use and just as eye catching as their bricks-and-mortar spaces.”
She says some of its big acquisitions bring not just brands but good digital talent to the group. Frasers realises this and seems determined to keep this talent.
For example, ISawItFirst boss Greg Pateras, who has decades of ecommerce experience and was previously CFO at The Very Group, was given the role of CEO of Missguided and ISawItFirst after it acquired the latter.
Asos: partner or takeover target?
Frasers acquisition of Asos has raised many eyebrows. What does the Mike Ashley-controlled group have planned with the edgy twentysomething brand?
Sources have suggested that Frasers could seek to use its stake in Asos to build a partnership which could involve selling each others’ brands or sharing distribution.
The group is using a similar approach with the premium fashion label Hugo Boss, where it has taken a stake to help secure supplies for its upmarket stores Flannels and House of Fraser.
Asos could be a vehicle for selling the labels already owned by the group and any future purchases made by Frasers. In fact, Missguided and ISawItFirst.com are already sold on the platform.
There could also be scope to bring Asos to life in House of Fraser stores.
The online giant took its first step into physical retail this summer with shop-in-shops in US department stores Nordstrom, perhaps it could be emulated in the UK with Frasers Group, says Soult.
But will the highly acquisitive Frasers Group be happy with just a partnership or will it pounce on Asos, which could be viewed as a very attractive buy given that its share price is down more than 80% over the year?
Newman thinks its entirely possible to imagine an Asos takeover.
“Given Asos’ market cap now, the prospect of someone acquiring a majority shareholding is feasible,” he explains.
“Its sliding sales and stock market performance could could make them vulnerable to a takeover.”
Hewson says “never say never” but believes the share purchase is more about partnership.
“I don’t think a takeover is going to be something which will happen in the next short term,” she says.
An Asos may be unlikely but the share buy may give Frasers a foothold into one of the UK’s biggest online businesses and allow it to work more closely with it.
With online retail more than a quarter of total retail sales and still growing, that is a powerful asset.
Any retail business that wants to prosper now and in the future, will have to nail online. Frasers is making sure it can do just that.
