The owner of Sports Direct, Jack Wills and the House of Fraser brands is pumping more than GBP100m (US$131m) into a “digital elevation” strategy aimed at improving the online shopping experience as more shoppers have taken to the channel as a result of the Covid-19 outbreak.
Announced today (20 August), the move comes amid news of a full-year profit slump for Frasers Group.
While as of the end of February, the group had been on track to deliver on underlying EBITDA growth target of between 5-15%, full-year profits were hit by store closures linked to the coronavirus pandemic.
Underlying EBITDA for the year ending 26 April rose 5% to GBP302m but underlying profit before tax fell 18% to GBP117m.
Group revenue rose 6.9% to GBP3.9bn. Frasers Group says it is committed to its aim of offering a premium environment in its sports, fashion and lifestyle fascias.
Chair of the company, David Daly, says the biggest strategic priority for the group is, and will continue to be, “elevation”.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalData“This drives our behaviours and our ways of working. We are committed to providing our customers with a multi-brand offering in a premium environment across our sport, fashion and lifestyle fascias.
“We continue to make progress with the reorganisation and elevation of the House of Fraser business. It remains a challenge but we are committed to offering a premium experience to our customers in an elevated environment.
“Our acquisitions in FY20 included Game Digital plc, Jack Wills, Sofa.com and Brookfield Unit Trust (Cheshunt Retail Park). We feel these businesses are a good strategic fit and they will add great value to our global group and help support our elevation strategy. Our strategic investment in the Mulberry brand is also seen as a good fit for the group and in particular for our strategy with Frasers.
“In the post year end period we announced an approximate 10% investment in Hugo Boss AG through a combination of physical stock, contracts for difference and the sale of put options. This investment’s maximum aggregate exposure is approximately EUR200m and reflects Frasers Group’s growing relationship with Hugo Boss and belief in Hugo Boss’s long-term future.
“To achieve our objectives with the elevation strategy we will rely heavily on our third party brands partnerships, particularly Nike and Adidas. At times these relationships can be challenging but we aim to work with our partners as we have done so for many years in delivering the right product to our customers at the right time and at the right price.”
The group is now intending to invest in excess of GBP100m in its digital elevation strategy.
“With a particular focus on Flannels and an enhanced customer experience, this investment will be integral in supporting the continued growth of our online channels,” said CEO Mike Ashley. “This commitment will support the Group’s wider ongoing elevation strategy. With digital transformation now at the forefront, the successful reopening of our stores after the Covid-19 lockdown and continuing strong web performance, we are confident in achieving between a 10% and 30% improvement in underlying EBITDA during FY21.
Another chaotic situation
Emily Salter, retail analyst at GlobalData, comments: “Following last year’s shambolic results debacle, this has been another chaotic situation for the Frasers Group with the release date being pushed back a week and non-executive chair David Daly buying shares on Monday during a closed period “in error”. Group sales were significantly boosted by the acquisition of a smorgasbord of players including Game, Jack Wills and Sofa.com, but like-for-like revenue declined more significantly versus last year as Covid-19 forced stores to close for the last month of the period (though Ashley initially tried to keep Sports Direct stores open as an essential retailer). Despite declining profit before tax, the group’s share price rose by over 15% this morning.
“Performance of the group’s sports fascias was bolstered by soaring demand for home gym equipment, athleisure and bikes during the lockdown, but revenue still fell by 14.6% excluding acquisitions due to temporary store closures, with Sports Direct’s poor online proposition not enough to offset this decline in physical sales. The growing focus for the business is the premium lifestyle division, which now makes up 18.2% of total revenue (14.5% in FY2018/19) as the group recognises the struggles of operating in the increasingly squeezed midmarket. Premium lifestyle growth excluding acquisitions was still strong at 18.6% as it opened new stores during the year, including Flannels’ flagship Oxford Street location which finally opened in September.
“Frasers Group will invest over GBP100m in a digital elevation strategy to improve the online shopping experience, a wise move given the accelerated shift to online spending due to Covid-19, which would also offer greater sales protection in the case of a second nationwide lockdown. After Ashley’s acquisition spree in the past few years, the Group did not give any indication whether this would continue amid rumours of a bid for DW Sports, as well as reports that the group could take up to 30 Debenhams sites in the case of store closures. This could provide a significant opportunity to create a multi-fascia store housing key brands Flannels, Sports Direct, Evans and Game, as all 30 would be too many sites for Flannels alone, but a more premium fascia would be more appropriate in many locations such as Watford and the Birmingham Bullring.”
