In a recent bourse update, Frasers Group revealed it has once again increased its stake in Hugo Boss, raising its investment to around €490m ($531m) based on the share’s most recent closing price.
Investment activity around Hugo Boss by Frasers Group has been somewhat erratic, GlobalData’s retail analyst Neil Saunders points out, noting it has increased and reduced its stake various times over the last few years.
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According to him, the general strategy with Frasers seems to be to take stakes in companies it thinks it can work with and partner with more closely. He noted luxury and premium have been a key focus area as the company looks to grow its Flannels concept and shift to a high-end offering.
Frasers Group’s investment strategy
Frasers Group, led by CEO Mike Ashley formerly, has a reputation for making bold and sometimes unpredictable investment decisions. Ashley previously said he wants the company to be seen as the “Harrods of the High Street.”
Ahead of debuting on the London Stock Exchange in February 2007, Frasers acquired Karrimor in 2004 for a reported £5m. A flurry of investment activity followed in the years later, and not always in the premium space.
Today, the company’s portfolio includes a diverse range of brands, from Sports Direct to Flannels, USC, Missguided, Jack Wills and famous Saville Row Tailor Gieves & Hawkes which it acquired at the end of 2022. Increasing its stake in Hugo Boss fits into a broader strategy of acquiring influential brands that can enhance its market presence.
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By GlobalDataFrasers said in a statement dating back to 2022 that it has “extensive ambitions” to grow the business inside and outside of the UK and is constantly exploring the potential for further expansion and that its latest deals are “in the ordinary course of business” of the company.
Upping stakes in Hugo Boss
Frasers has been steadily increasing its holding in Hugo Boss over the past year, signalling a calculated gamble on the resilience and appeal of the luxury fashion market. This move appears to be part of a long-term strategy to integrate more high-end brands into its portfolio.
Following the latest investment, Frasers now owns 7.99% of Hugo Boss‘ total share capital and 13.81% of common stock via the sale of put options. GlobalData’s head of apparel, Chloe Collins, pointed out that Frasers is capitalising on the brand’s “relatively low” share price, which is nearly half of what it was this time last year.
She attributed this drop to a much slower performance in the first quarter of FY2024, with sales growing only 4.8% compared to 15% in FY2023.
Frasers previously shared the reason behind its continued investments, stating: “Frasers Group has a long history (over 20 years) of making strategic investments to develop relationships and partnerships with other retailers, suppliers and brands, including by way of acquisitions of shares, options, contracts for difference and other financial instruments.
“The strategic investments Frasers Group makes offer new opportunities for the company, whilst also helping to support the long-term future of the existing retail businesses, and the many thousands of jobs they sustain.”
What does it mean?
Saunders believes Hugo Boss has a good brand portfolio that will be of interest to Frasers’ customers: “Indeed, Boss and Hugo Boss products are already sold by Frasers. Having closer relationships with Hugo Boss allows Frasers to exert more influence over things like products and distribution, although its stake does not allow it to have ultimate control.”
However, at the same time, he highlighted a grey area, warning that the main risk comes from the “investment not paying dividends.” He added that while this scenario is not immediately likely, Frasers has tied up capital and money in a brand it does not fully control.
Saunders said Frasers needs to ensure that the capital deployed generates a strong return.
Understandably, increasing its stake will give Frasers more influence over Hugo Boss’ strategic decisions. This control can facilitate synergies between Hugo Boss and other brands within Frasers, leading to cost savings and enhanced marketing strategies.
History of investments
Hugo Boss is one of many retail investments that Frasers, which is run by Mike Ashley’s son-in-law Michael Murray, has. It also holds stakes in e-tailers ASOS, and Boohoo.
But it is worth noting that not all investments Frasers has made have paid off.
Ashley had previously shared regrets over the House of Fraser acquisition. And three months after it acquired luxury online clothing platform Matches, Frasers announced it was putting it into administration, saying the brand had “fallen short of its business plan targets.”
Frasers had acquired Matches in a £52m ($65.8m) deal aimed at “strengthening its luxury offer.”
In a statement, Frasers said Matches had “continued to make material losses” despite its support and the brand’s management team attempting to find ways to “stabilise” the online clothing platform.
GlobalData apparel analyst Alice Price also said at the time it showed Frasers had underestimated the scale of investment and time required to turn around the business.
Similarly, in 2022, Frasers added its first fast fashion pureplay to its roster, after acquiring Missguided out of administration in a £20m ($25.2m) deal, deemed to be a “punt worth taking.” But a year later, ultra-fast fashion giant Shein bought Missguided’s intellectual property and trademarks for an undisclosed value.
Regardless of these setbacks, Frasers Group appears determined to bolster its luxury portfolio. Most recently, Frasers entered a new partnership with THG to acquire the latter’s luxury brand portfolio including Coggles. The British conglomerate said the move to partner with THG would mutually enhance retail operations at both groups, aligning with Frasers’ Elevation Strategy.
