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Frasers Group, ex Sports-Direct group, is a UK-based retail group led by CEO Mike Ashley. It has been expanding its fashion and luxury portfolio over the past few years, trying to shift away from the sports tag toward a luxury brand. It starts in 2017 with the acquisition of Flannels, then with the buyout of then-bankrupt British department store chain House of Fraser in 2018 with the ambition to elevate it to the luxury market. With several additional buyout and acquisitions –Frasers Group also has stakes in Mulberry and Hugo Boss since 2020– the group appears to be trying to establish itself as a lifestyle and luxury retailer.

What retail model is the group following and is it viable? United Kingdom is living dark days as both the pandemic and the Brexit are putting huge pressure on the country’s economy, and the retail sector has not been spared.

I. THE GROUP

Sports Direct was launched by Mike Ashley in 1982, as a sports and ski shop. The business was a success and by 1990 he had opened 100 stores across the United Kingdom. It was in the late 90s that Ashley started to acquire brands, often from financially struggling companies. Sports Direct continued to grow as a brand and a retailing company, and even expanded internationally with about 100 stores in Europe and acquisitions in the U.S. After acquiring House of Fraser, the company was rebranded Frasers in December 2019.

The Group is currently structured across five business segments:

• UK Sports Retail, with notably Sports Direct and DW Sports (sports and gym business)
• Premium Lifestyle, with House of Fraser and Flannels among others
• European Retail, includes operations in European local markets
• Rest of World Retail, includes physical stores in the U.S. and online stores in Asia
• Wholesale & Licensing, for the brands it owns or has shares in

Frasers Group’s annual financial report, issued last September for the period running from 29 April 2019 to 26 April 2020, shows an increase in revenue and stable EBITDA (for a year which included 5 weeks of lockdown). UK Sports Retail was the best performing segments, with a GBP 2,187.3 million* revenue.

However, the real impact of the current crisis on the results will more likely show in the half-year report to be released later this month.

Diving deeper into its most notable businesses

a. House of Fraser

![house of fraser

House of Fraser London

The British department store has been through quite extraordinary changes throughout its history. HoF was established in Scotland in 1849 as a drapery shop. The business rapidly expanding and diversified, buying brands and opening branches throughout the country. The company went public in 1948 and even acquired the Harrods group in late 50s. It was acquired by the Al Fayed family in the 80s, then went public again before being bought by an Icelandic bank in 2006 and to be sold to Chinese Sanpower group in 2014. It finally was acquired by Mike Ashley’s Sport Direct group in 2018 as it collapsed into administration.

Ashley rescued HoF with the ambition to elevate the department store to luxury, turning it into the ”Harrods of the high street” in Mike Ashley’s words. But House of Fraser was in bad shape when Sports Direct (now Frasers Group) bought it, and turning it around seems to be more difficult than expected: a year after the buyout, the group said: "If we had the gift of hindsight we might have made a different decision in August 2018.”

Ashley had the ambition to rebrand the 150 year-old department store into “Frasers” and redesign the stores, but not much has been done since August 2018. The Covid crisis was another setback.

The former House of Fraser store at Meadowhall shopping centre in Sheffield will be the first to experience the rebranding and to become Frasers, with a more premium lifestyle offer. The plan, released in January 2020, was to open in two phases. Frasers department store is supposed to open this winter 2020 and Flannels is to open in Spring 2021, within the Frasers store. But the pandemic and the new restrictions and lockdowns across UK seem to have delayed the project.

Recent news this summer announced that House of Fraser store located at the Westfield London White City shopping centre will turn approximately two third of its surface into a co-working space.

One can wonder where that leaves the department store and, if after the bankruptcies, the buyouts and the plans, it can survive. Competition is fierce in the United Kingdom, with many formats of department stores on a small territory. Plus the crisis has put the market under huge difficulties and pressure.

b. Sports Direct

![sports direct portsmouth

Sports Direct Portsmouth

Sports Direct was a small store before becoming a big retailing group it is today. And the original sports concept Sports Directs still exists and operates stores. Last month the group unveiled a new Sports Direct concept-store in Portsmouth, with a new multi brand format [all brands are owned by Frasers Group].

The store not only carries the traditional sports brands like Under Armour, adidas, Asics and more, but also incorporates retail space for Flannels and British retailer USC. The USC streetwear and fashion section brings brands such as Champion, Levis, or Lacoste, while Flannels houses designer labels. The two-storey, 4 645sqm store also includes retail floorspace for Evans Cycles, specialising in bicycles, and Game, a destination for gaming offering an extensive range of games, consoles, phones, PC components and more. The Portsmouth store is the first to feature Sports Direct’s inclusive mannequins (like Nike did in its Paris House of Innovation) and a sustainability feature wall highlighting the current range of eco-friendly products on offer.

With this new format, Frasers Group takes a step away from the traditional sports store, presenting its customers with a wider offer that goes beyond just sports and that extends to fashion and lifestyle. It is a smart move in these times of pandemic, when casual, comfortable clothing are is in demand, and when the fashionable sweatpants are trending (see IADS Exclusive article: Adapting to new consuming habits).

With this concept, Mike Ashley once again confirms his will to turn his business into a luxury lifestyle reference. “Head of elevation” for Frasers Group Michael Murray said: “Our next-generation stores offer customers the biggest brands in sportswear, sports equipment and fashion, all under one roof […] This is a major part of Sports Direct’s brand elevation strategy that will see a huge investment in a number of new stores, while upgrading and improving existing ones across the UK.”

The new Sports Direct format is being upgraded to a lifestyle destination to cater to sports lovers but also to a more fashionable crowd. We can wonder if this concept will survive long-term when somewhat similar business Citadium, owned by Printemps, just announced it would be closing stores in France in an attempt to reduce cost structure.

II. THE OPPORTUNITIES

a. Flannels

Flannels London

Flannels started in 1976 as a menswear store in northern England. It was acquired by Frasers Group in 2017, which has since turned the brand into a curated luxury designer clothing and accessories store for men and women. Nowadays Flannels counts almost 40 locations.

A big move for Frasers Group was the opening of Flannels flagship store in London in September 2019, that shows off what Mike Ashley initially envisioned to be the future of high-end department store House of Fraser. The store can be considered as a sort of luxury department store for younger customers. The store spans four floors and houses a curated mix of men’s and women’s luxury designer clothing and accessories, featuring catwalk collections to the latest streetwear drops, from emerging designers and luxury’s biggest names such as Balenciaga, Off-White, Balmain or Canada Goose. The store offers different services and experiences such as customisation, personal shopping service, and click-and-collect. The building has no windows and features big interactive digital screens. As Gen Zs are extra connected and digital savvy, it is just another way to reach out to them.

The bold and most surprising move was to open a luxury retailer on Oxford Street, known for its high street offer with outposts from retailers such as Primark, Zara, and Topshop to name a few. We can speculate that Flannels does not cater for the needs of the traditional luxury shopper, and its strategy is to reach out to a broader clientele.

Indeed, the store has many outposts on secondary markets, where the competition in the luxury field is less intense and where it is easier to reach out to younger customers with this type of concepts, compared to the London crowd. Establishing itself on secondary markets is also interesting financially speaking, as rents are lower and as the local public need to be addressed directly -not everybody can travel to London or Paris anymore to get their hands on fashion. Most recently in October 2020, a Flannels store opened in Birmingham, and the group announced the opening of more outposts.

Champs-Elysées concept store

Still in Paris, Printemps opened Le Market corner, which caters to Millennials and features designer clothing.

What is also striking about Flannels is that, despite being a quite small business within the full group operations, Ashley is betting on it and helping it grow by implementing it inside other concepts, such as he did with HoF and Sports Direct. House of Fraser giving space to Flannels is a demonstration of the retailer’s will to differentiate its offer in order to cater to a younger crowd, but within the department store -like Rinascente did in Milan with its Annex store, where a curated offer caters to Millennials and Gen Zs.

![2020 ARTICLE Frasers Group

Flannels Birmingham

b. GAME

GAME started in 1992 as a gaming and electronics store. The company expanded, and even extended operations internationally. After experiencing changes in ownership and financial issues, it filed for bankruptcy in 2012 before being bought by OpCapita. It went public and was listed on the London Stock Exchange in 2014. Frasers Group (then called Sports Direct) started invested in the brand in 2017 and eventually completed the acquisition of the brand this year, inheriting 256 destination-for-gaming stores.

Following the takeover, stores were closed and others opened as part of the Group’s strategy to move the GAME stores into the new elevated stores -in the newest Sports Direct in Portsmouth and in London’s House of Fraser. It is one of the group’s biggest brand in terms of number of stores (242), especially compared to Flannels (37 locations) and HoF (48 locations).

It is interesting that Mike Ashley decided to invest in the gaming sector, as it is becoming the latest way to do fashion, often referred to as the Gamification of Fashion. That fact that people are spending more time at home this year across the globe has accelerated digital trends, and it will force changes in how business will be done during and after this crisis. Online gaming is on the verge of entering a new phase where it could have big implications for the fashion industry. Indeed, several brands lately have been using gaming to showcase their fashion work, especially since the Covid break-out. Balenciaga announced it would release a video game called Afterworld: The Age of Tomorrow in which it will present its Fall 2021 collection. Several brands have partnered with Nintendo’s Animal Crossing (including Valentino and Highsnobiety, and extending to the Getty Museum and even fast-food chain KFC) to showcase their work.

III. THE RISKS

a. House of Fraser

As explained above, House of Fraser has had quite a history. Mike Ashley purchased it as it was already declining, with the ambition to turn it around and elevate it. However, such work will require a huge investment. So far, the group’s Premium Lifestyle business segment (the one HoF is attached to) is not the best performing one: GBP 732.9 million* versus GBP 2,187.3 million* for the UK Sports Retail’s segment.

Therefore, we may wonder if Ashley will make the necessary investments to upgrade it, especially in these uncertain times. Frasers Group’s rival retail group Arcadia fell into administration on 30th November, which had consequences on its long-term landlord, Debenhams, which is set to enter liquidation after failing to exit bankruptcy. These closings are another blow in the UK retail sector and we can’t help but fear that House of Fraser will suffer the same fate.

b. International business

Another concern lies within the group’s international businesses (Europe and World). European Retail accounts for GBP 599.8 million* and Rest of the world Retail for GBP 215.9 million*. What will happen to these businesses, especially the European operations, once Brexit will definitely be official and implemented on 1 January 2021? This will surely change a lot of thing in terms of revenues. Expect an increase in shipping costs for importing and exporting goods, new taxes and less flexibility among many new regulations and setbacks. For instance, John Lewis has already announced that it would stop selling and shipping items internationally effective this month, as the costs are too high.

c. JD Sport

Frasers Group biggest rival is JD Sport in UK. The British sports-fashion retail company posted a GBP 6,110.8 million** revenue in its latest financial report for the period running from 2 February 2019 to 1 February 2020. Frasers saw a group revenue of GBP 3,957.4 million* for the year ( April 2019 to April 2020). Obviously these results will significantly change and next year’s revenue will likely be impacted by the pandemic that forced stores to close for several months.

JD Sport was close to resembling Frasers Group as it was well-placed to acquire bankrupt chain Debenhams, therefore also becoming the owner of a department store. However the group pulled out of Debenhams takeover, leaving the chain with no other choice than to enter into liquidation. The fact that Arcadia group filed for bankruptcy significantly impacted JD Sport’s decision, as it was the largest concession holder at Debenhams.

Conclusion: Frasers Group, a viable business model?

Mike Ashley is aggressively entering the luxury scene, elevating its current portfolio and investing in brands. Rumours are that his group might eventually buy Mulberry. He made a bid to acquire bankrupt UK department store chain Debenhams but was kicked out of the race after failing to match the price tag demanded by the group’s advisers. The Same thing happen when he bid for Woollen Mill Group’s owned Jaeger early November. Now it has offered to rescue the Arcadia group for GBP 50 million. Qualified as a "lifeline" loan, it was rejected by Arcadia’s owner Philip Green.

Yet, between investing in luxury, elevating existing businesses and expanding its acquisitions, the global strategy of the group remains opaque. With its brands portfolio, and instead of opening several multi brand spaces under multiple labels (Flannels, Sports Direct, …), the group could just use House of Fraser to house all of its concepts, optimising the synergy between the brands and saving the department store at the same time -or at least try.

After all, given the collapse of Arcadia, some opportunities might open up for Mike Ashley. The question is: is he going to use them to invest in his existing businesses, or to invest in buyouts?

Credits: IADS (Louise Ancora)

**source: Frasers Group yearly financial report

** source: JD Sports yearly financial report*