Carving up the retail sector

It does not look to be the most attractive role in the retail sector but the CEO position at Boohoo is currently the most fought after in the industry. In the blue corner we have Mike Ashley, founder of Frasers Group, who wants to install himself as chief of the online fashion retailer and in the red corner we have the Boohoo board that has appointed Dan Finley as the new boss.

Whatever the outcome of this tussle it further highlights the outsized role Ashley has on the retail sector as his Frasers Group continues to take stakes in myriad retailers including Boohoo, where it has 27%, while also acquiring outright a growing number of retailers and brands.

In only the last three years Frasers Group has bought Gieves & Hawkes, Matches Fashion and Missguided while also building stakes in Asos, AO World, Currys and Mulberry. On top of this the company has also been buying shopping centres around the UK.

But Ashley and Frasers Group is not alone in embarking on an extensive buying spree because Next also continues to build out its presence in the sector through a variety of acquisitions and stake-building activity. In recent years it has snapped up Fat Face, Reiss, Joules, Cath Kidston, JoJo Maman Bébé and the UK arms of Victoria’s Secret and Gap.

Such activity is a reflection of the strength of both Frasers Group and Next that have arguably been the best performing retailers in recent years. Whereas many others in the industry have struggled with managing multiple channels, dealing with economic headwinds, handling Covid-19 and the cost-of-living crisis Next and Frasers have navigated this tough landscape incredibly well. So well in fact that they have been able to take advantage of the weakness of others and picked up brands on the cheap as they have struggled to survive.

Historically acquisitive strategies have been fraught with difficulty. Not helped by the fact such activity has often been driven by management’s overcome with hubris and/or financial operators taking advantage of cheap debt. Next and Frasers are very different because their strategies of buying brands are being undertaken by two of the best operators – Ashley and Lord Simon Wolfson. They might be two very different types of animal but the common characteristic is wonderful retailing skills.

There is also some commonality in their acquisition strategies. For Next the plan is to place acquired brands on its Total Platform, which it created as an online marketplace for selling third-party brands and it has become an increasingly important part of its business driving meaningful revenues.

Meanwhile at Frasers the strategy has been to buy brands that it can place within its large physical stores (and in the future, into the newly-acquired shopping centres). For those retailers in which it only holds a stake it is a very powerful leverage tool that it can use on their managements to help convince them to work with Frasers Group.

Their respective strategies appear to be working incredibly well and are helping both retailers develop into organisations with multiple revenue streams. Their house-of-brands-type models is helping them touch different parts of the market, which enables them to better manage a rocky retail landscape.

While they continue to build-out these strategies it looks like Next and Frasers Group will have a growing impact on the retail sector, especially as the opportunity to pick up further distressed assets in the future looks highly likely as the industry undoubtedly faces further pressures.

At the moment the land grab is very much a two-horse race as Ashley and Wolfson carve up a growing part of the retail sector. Although whether Ashley also succeeds in his efforts to take the hot seat at Boohoo remains to be seen.

Elliott Sanderson, founder, Sanderson King