Yahoo Finance Frasers: Mike Ashley’s high street giant that has confounded its critics
Frasers Group’s latest string of deals were made with little fanfare.
The owner of House of Fraser, Sports Direct and Jack Wills has been in such an acquisitive move that its latest purchases – of the Dutch Sports retailer Twin Sports, clothes seller Matches Fashion and online cycling store Wiggle – made few headlines outside.
All three purchases, made in the space of just a few months, are evidence of a firm confident with a growth-through-acquisition approach, pioneered by its founder, Mike Ashley, that has helped the group come to dominate the UK high street despite the wider sector’s malaise.
In its most recent set of results – which pertained to the six months ending 29 October – the firm posted record earnings, with profit before tax rising by eight per cent and turnover rising 4.4 per cent to £2.8bn.
This was despite high profile closures of multiple of House of Fraser stores, indicating the efficacy of efforts it has made to diversify the business.
The holding firm, known until 2019 as Sports Direct Group, attributed much of this growth to its savvy acquisitions during that reporting period.
These included a takeover of the Australian online marketplace MySale and JD Sports Fashion’s “non-core” UK brands, including Tessuti and Sott, indicating the degree to which the group is beginning to flex its muscles overseas as well as domestically.
But the more recent acquisitions of Wiggle, Chain Reaction—another cycling brand—and Matches are especially interesting.
What has happened to the UK high street?
Frasers’ success has come despite, or perhaps because, many of the industries it is targeting—bricks-and-mortar retail, cycling stores like the aforementioned Wiggle and Evans Cycles, and the luxury sector—have struggled in recent years.
“For many small retailers, the past three to five years have been terminal,” said Gordon Fletcher, Associate Dean of Research and Innovation at Salford University, “with a sequence of crises of one form or another.
“For some, it has been a period of consolidation, focusing on what works and what is profitable. For example, the movement of M&S towards food…
“For others, such as Frasers, it has been a period to grow and pick off the choice of assets from failed operations.”
Frasers has certainly grown. The group’s revenue increased from £3.7bn in 2019 to £5.6bn in 2023.
Since then, several high-profile acquisitions have been completed, so that figure is set to jump again when the next reports come in July.
In that same period, a combination of Covid and the cost-of-living crisis has seen the retail sector shrink by between five and 10 per cent, and over 11,000 stores close in the last three years.
What lies behind Frasers’ recent success?
Mike Ashley built his name partly by snapping up distressed assets at low prices and turning them around.
It is an approach that Ashley’s son-in-law, Michael Murray, has continued to adopt since he stepped in as CEO after Ashley stepped back in 2021.
In the past, these included the once-trendy Jack Wills, Sofa.com, and the UK gaming shop Game, which Ashley bought out of administration.
Wiggle, Chain Reaction and Matches were also all bought through administrators, except these more recent acquisitions have an element that sets them apart from the high-profile Ashley takeovers of old.
Rather than taking on the liability of brick-and-mortar stores, rents, and a large number of retail staff, the company has chosen only to scoop up the three brands’ intellectual property. This means that rather than taking on any of the company’s physical manifestations, it owns the brand, imagery, and any patents it might own.
“Buying IP could be seen as the model for moving away from the burdens and liabilities of high street retailing towards a more heavily digital future for all the Frasers brands,” Fletcher told City A.M. “Many, but not all, of the reasons for failures among high street chains, relate to the cost of the properties themselves.”
Given that, as part of its portfolio, Frasers already owns department stores like House of Fraser, the move to focus on intellectual property feels especially shrewd.
House of Fraser will forever need to stock different brands and be home to different sections to distinguish its various departments. Owning several household name brands – like Wiggle or Matches – is a free, effective way to do that.
What does the future hold?
As Fletcher observed, bulking up can bring with it other advantages. “Being big does bring efficiency and power in the supply chain. [But that will only work] with a degree of consistency between brands.”
In the UK, this will invariably come in the shape of a greater cross-pollination of Frasers brands under one roof. At the same time, internationally, the company has said it wants to become the “leading sports retailer” in Europe and the Middle East.
This shows just how far the once-scrappy brick-and-mortar retailer has come since Ashley opened his first sports shop in Maidenhead with a £10,000 loan from his family.
“When Sports Direct bought House of Fraser, many commentators observed how the company had acquired a UK high street icon,” said Fletcher. “With the steady pace of purchases since, increasingly Frasers Groups is the UK high street.”
