Sports Direct International PLC shareholders unanimously voted on Monday to back boss Mike Ashleys plan to change the name of the company but can this wild retail beast truly change its spots?
Ashley, who built the business up from scratch as a pile-em-high, sell-em-cheap discounter, will on Tuesday morning preside over an empire under the banner of Frasers Group PLC (LON:FRAS).
The new name, taken from last years acquisition of beleaguered department store chain House of Fraser and coinciding with the purchase of the freehold of the original Frasers store in Glasgow, is part of Ashleys long-held desire to move more upmarket, first aiming to become the “Selfridges of sport” three years ago and more recently “the Harrods of the high street”.
Towards this end, the former professional squash player has been pursuing a new angle to “elevate” the stores and other aspects of the business, which is being led by Michael Murray, the partner of Ashleys daughter Anna.
Part of the reason seems to be to drive margins, but another is to try to confound a long-held bugbear of Ashleys that Sports Direct is being shunned by the US sportswear titans Nike and Adidas when they are looking to sell their funkiest new designs.
Indeed, it was some of the third-party suppliers that told Ashley that the group needed to "elevate" its offering away from the traditional discount model.
Although it is arguable that Ashleys own ball-breaking tactics while building up the chain contributed to the companys pariah status among the biggest brands, this year has seen him make a number of public rants against the perceived bias he sees given to bitter high street rival JD Sports Fashion.
Is the elevator working?
In the FTSE 250 companys half-year results, it was stated that there was a continued focus on “delivering elevated retail experiences for our consumers” and that the group was “on track to complete our stated store elevation plan by the end of the financial year”, with “between 5 to 10 elevated stores” during the full year.
A major plank of the strategy is the opening of flagship stores, with a “stunning” new Flannels flagship opened in September, with “amazing feedback” from various parties “including the brands”.
The completion of the purchase of the Frasers store in Glasgow will, the company said, allow it to showcase the elevation strategy and intentions for the remaining portfolio.
While the elevate strategy was blamed for contributing to the retailer's revenue declining 6% in the period, including a 9% drop in core UK sales, group profit margins increased by a chunky 230 basis points, with underlying profits (EBITDA) swelling 22% to £181.2mln.
Investors seemed impressed, with the shares shooting 30% higher on Monday.
“Fraught with risk”
“Todays first half results at least offer some encouraging signs amid green shoots of recovery in the once upmarket department store House of Fraser and a strong contribution from new Flannels designer clothing stores,” said Russ Mould at AJ Bell.
But he wondered if Sports Direct can really elevate itself from the gritty origins of the chain, suggesting “it will take more than a surface level rebranding to set the business on a new path” and “require a different skill set from the one which has helped Ashley go from a single store in Maidenhead in 1982 to todays retail empire”.
He said such a move is “fraught with risk”.
“Ashley will have to walk a tightrope to ensure he does nothing to undermine his premium brands which, after all, are what allow you to charge higher prices for products.
“He has already attracted some criticism for filling House of Fraser stores with discount goods and sportswear. Once you lose the shoppers prepared to pay for high end goods it could be a tough ask to win them back.”
Also admitting to be “strategically nervous” about the plans was analyst Jonathan Pritchard at Peel Hunt, who was in the mood for a festive Jack and the Beanstalk pantomime.
The key question, he said in a note to clients after the results, was whether Ashley was “risking selling its discounting soul (the cow) for the dream of a more luxurious future (the magic beans)”.
In other words, Pritchard said he fully understood why Sports Direct wants to appear more upmarket to the big brands, but has “never been able to balance the need to open retail palaces with keeping the lifeblood of the business (ie, the core customers) happy”.
He said he could understand that the fall in UK sales was partly due toRead More – Source