Frasers goes with AO in continuing drive for retail dominance

While there has been no suggestion that AO is at risk of going under, the company has faced significant headwinds as consumers have cut back on household spending to meet soaring food and energy costs.

The Bolton-based company reported a 17% drop in revenues during the six months to the end of September, with pre-tax losses tripling to £12m. However, it raised its full-year earnings guidance after closing loss-making divisions including its German business.

READ MORE: Retail therapy: Mike Ashley goes bargain hunting in Dundee

Frasers paid 68p for each of its 109.4 million shares in AO, which is described as a “strategic investment” that the companies have been discussing for the past two years. Founded in 2000 as Appliances Only by chief executive John Roberts, AO will, according to Frasers chief executive Michael Murray, benefit from the larger group’s “expertise and ecosystem”.

"Frasers has long admired what John and the AO team have built, and we are delighted to have the opportunity to form a supportive, strategic partnership,” said Mr Murray, who succeeded his father-in-law Mr Ashley as chief executive in May of last year.

“AO is a fantastic business with a clear strategy which is leading the market in online-only electricals. Through this investment, Frasers will benefit from AO's valuable know-how in electricals and two-man delivery, helping us to drive growth in our bulk equipment and homeware ranges.”

Mike Ashley (Image: PA)

The parent of brands from Sports Direct to Evans Cycles, Frasers reportedly purchased its stake in AO from crisis-hit Odey Asset Management, whose founder Crispin Odey resigned at the weekend following allegations of sexual misconduct which he denies. Perhaps the timing was coincidence, or maybe the investment firm’s misfortunes created the opportunity to finally get Frasers’ investment in AO over the finish line.

A prolific dealmaker known for driving hard bargains, Mr Ashley opened his first sport and ski shop in 1982 at the age of 18 and went on to build this into Sports Direct, overtaking rival JJB as the UK’s largest sportswear retailer in 2006. The sporting goods portfolio includes brands such as Dunlop Slazenger, Donnay Sports, Karrimore, Kangol and Lonsdale.

In the course of building this business Mr Ashley had boardroom dealings with Rangers FC that eventually turned fractious. He also owned Newcastle United football club between 2007 and 2021, which similarly ended under arduous circumstances.

READ MORE: Rangers loses right to £2.8m of merchandise income due to Mike Ashley legal block

But having cemented the group’s position in sportswear retailing, he turned his attention to the premium end of the market in 2017 with the acquisition of luxury designer fashion chain Flannels. This was followed in 2020 by the purchase of what was then known as House of Fraser for £90m after the 169-year-old department store collapsed into administration.

Frasers further extended its influence in the upper end of the retail by taking stakes in chains such as USC, French Connection, Hugo Boss and N Brown. As part of its on-going “elevation strategy”, the group also announced earlier this month plans for a multi-million-pound makeover of its luxury flagship store in Glasgow’s Buchanan Street.

A stalwart of the city's retailing scene for the past 170 years, House of Fraser is set to embark on a "significant" refurbishment with a focus on new high-end brands and partners. Work is expected to begin within 12 months of planning permission being granted.

House of Fraser, Glasgow (Image: NQ)

Meanwhile, Flannels has expanded to more than 50 stores across the UK as other brands such as Base Childrenswear, Choice and Giulio that were picked up during the Frasers shopping spree have been closed and rebranded under the Flannels fascia.

It was reported last week that Kids Cavern outlets in Glasgow and the Merseyside town of Kirkby are due to close, with three remaining shops to be brought under the umbrella of Flannels Junior. Kids Cavern was one of 14 premium fashion businesses acquired by Frasers from JD Sports in 2022.

This opportunistic yet pragmatic approach to buying and repositioning brands has drawn criticism from some suppliers within the industry who warn that Frasers is effectively taking over its competitors and shutting them down, thus squeezing the UK’s network of retail distribution outlets and reducing consumer choice.

Frasers has also gone bargain hunting in the retail property market, where the pandemic lockdowns of all but “essential” merchants such as supermarkets triggered a collapse in values.

READ MORE: Glasgow's House of Fraser set for multi-million makeover

The group completed the acquisition of the Overgate Centre in Dundee in March of this year for a reported £30m. The transaction represented a significant loss for the previous owner, Legal & General, which bought the centre nine years earlier from commercial property investment heavyweight Landsec for £125m.

The Overgate deal came less than a week after Frasers closed on the £58m acquisition of The Mall in Luton. Both shopping centres were already home to several brands within the Frasers Group.

Markets are cyclical and while Covid was irrefutably a massive disruptor, many retailers were struggling prior to the pandemic to get to grips with the impact of online retailing. It’s kind of like what US astronaut Buzz Aldrin, the second man to walk on the moon, said in 2003 about there being a loser for every winner: “That person didn’t really need to lose. They just didn’t understand the game plan.”

There is no such ambiguity when it comes to the Frasers strategy, which appears to be gearing up for the addition of kitchen appliances to its stockpile of goods in the quest for retailing domination.