Frasers Group on Monday said that it had acquired a 12.5 per cent stake in the Mulberry, the UK premium leather goods brand that remains majority-owned by Singaporean tycoon couple Christina Ong and Ong Beng Seng. The deal is the latest move by the British retailer, previously known as Sports Direct, to reposition itself towards the premium segment of the market.
The market value of the stake as of close-of-trading in London on Monday was around £19 million. Mulberry shares were up about 8 per cent as of late morning Tuesday.
Frasers Group’s premium lifestyle division includes high-end chain Flannels, designer store Cruise and fashion chains Van Mildert and House of Fraser. Revenue from the segment, which was singled out by the company as one of its key drivers of growth, jumped 79.2 per cent to £282.6 million in H1 2019; losses from it dipped to £5.6 million from £29 million in the year-ago period. “A key strategic priority for Frasers Group is the elevation of our retail proposition and building stronger relationships with premium third party brands,” the company said in a statement.
UK retail suffered the worst year on record in 2019, with sales falling for the first time since 1995. Sales of luxury goods, on the other hand, have grown 25 per cent between 2014 and 2019, according to Euromonitor International. While contemporary department stores like House of Fraser and Debenhams have fallen into administration, luxury players like Selfridges and Harrods are profitable and have posted record sales. Similarly, Frasers Group has seen a positive reaction to the opening of its new Flannels flagship on London’s Oxford Street, which stocks brands including Gucci, Givenchy and Off-White. According to the company, the new Flannels stores were behind the 79.2 per cent growth in the Frasers Group premium lifestyle division.
Mulberry, which competes at a higher price point, has also been struggling. It reported a £9.9 million loss in H1 2019, up from £8.2 million a year earlier. Its turnaround has been heavily focused on international expansion, and the company has seen sales increase in the international segment of the market, which made 35 per cent of total revenue in H1 2019. Despite these losses, Mulberry still has valuable brand equity that stems from its association with British heritage, says Chloe Collins, senior retail analyst at GlobalData Retail.
“House of Fraser is struggling, but you see Selfridges doing well, so I think [Frasers Group is] trying to go on that route,” she says, adding that the benefits for Mulberry are instead questionable. “[Frasers Group] still [has] that strong sports attachment at the moment, whether they are going to work or not is still a question, so to buy Mulberry now seems a bit premature, a bit ambitious.”
Frasers Group started its bid to go upscale by revamping Sports Direct stores about five years ago. It completed the acquisition of Flannels in 2017 and the £90 million purchase of House of Fraser, which was in administration, in 2018. Earlier last year, CEO Mike Ashley also made a £200 million bid to buy Debenhams, which was rejected.
At the time of its House of Fraser purchase, Ashley said that he wanted to turn the department store chain into “the Harrods of the high street”. The turnaround has proved challenging, and the company announced further store closures in December. Sports retail remains the largest category for Frasers Group but, excluding acquisitions, sales in the segment actually fell 8.6 per cent in H1 2019.
“We do not believe the rollout of “new-generation” stores is fast enough to offset weak trading across the core UK estate, and we see little evidence that these stores are securing the desirable, premium products from key third-party brands (Nike/Adidas) that consumers demand,” analysts from investment bank Berenberg wrote in a note in December.
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