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29 March 2021

Frasers Group Eyes a Bright Future

Frasers Group is most notoriously known for its ownership of Sports Direct. The group has accumulated a portfolio of well-known high-street brands with a primary focus on sports equipment, sports clothing, and lifestyle fashion. The retail brands owned by Frasers Group are diverse, ranging from budget sporting apparel, to high-end designer clothing.  

The Coronavirus pandemic has affected each brand in unique ways, but its diversity has allowed the more resilient divisions to offset some of the harder hit. The company’s leading presence in the Sports Retail sector is perhaps its most influential division, making up 56% of the total revenue generated by the group. Most of these sales are derived from Sports Direct, a company which provides an ample range of budget equipment and clothing relevant for most sports. While this gives the company the ability to meet most demands, its large product range necessitates large floorplates on the high street. Often multi-storey, rental obligations and inventories are high, presenting a costly liability at a time when non-essential retail has been closed for the majority of its fiscal year. A company so reliant on footfall, it has been outpaced by its competitors with far better online offerings and robust distribution networks. Another thorn in the brand’s side has been a pause on team sports, where demand has been severely depressed. Closed schools, cancelled events, and sports training forbidden, Sports Direct’s market was flipped on its head overnight, with revenue from UK Sports Retail being 14.6% lower than the year before.

From 29th March, the ‘rule of six’ returns and, most relevant to Frasers Group, outdoor organised sports for adults and children will return albeit with indoor sports remaining off limits for the time being. While on the one hand this gives a lifeline to the brand, in-store purchases will not be able to recover until non-essential shops open on 12th April.

On the other end of the spectrum, premium brands account for around 18% of Frasers Group revenues, making it the second largest aspect of the company. Flannels, House of Fraser and many others give Frasers a piece of a less economically sensitive market. High-end goods are typically less exposed to economic turmoil, and targeted to higher income, more discerning buyers. With this demographic largely unaffected by the economic woes caused by the pandemic, this customer base has suffered much less unemployment, while such purchases make up a smaller proportion of their income.

This segment of the business has performed on the other end of the spectrum, as the Premium Lifestyle revenues increased by 18.6% (excluding acquisitions). The outlook for this division is positive, even as stores remain closed. With consumer savings reaching higher than normal levels, and outdoor socialising becoming increasingly expansive after 29th March, there is likely to be a pickup in demand from customers with a higher level of disposable cash and a reason to buy new clothes.

Footfall through stores will continue affect almost all companies owned by Frasers Group for a short while longer, with non-essential stores closed. However, all the brands have prominent online retail platforms. With increasing reasons for the products to be purchased by potential customers, such as sporting activities and a rise in socialising, the sales of both primary divisions are likely to recover continuously as more and more restrictions are lifted.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
Frasers Group Eyes a Bright Future
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