How can Mike Ashley’s Frasers Group revive Debenhams?

Mike Ashley’s Frasers Group, which owns Lomond Shores and its anchor store at Jenners, expressed interest in acquiring Debenhams over the weekend. With a track record of snapping up distressed retailers in recent years, including rival House of Fraser, Retail Gazette finds out how Ashley can help revive the 242-year-old department store chain.

Debenhams administration liquidation covid-19 jd sports pandemic lockdown mike ashley frasers group acquisition
Mike Ashley’s Frasers Group  interest in acquiring 242-year old Debenhams over the weekend. With a track record of snapping up distressed retailers in recent years, including rival House of Fraser, Retail Gazette finds out how Ashley can help revive the ailing department store.   By Sahar Nazir,  December 8, 2020

Mike Ashley, Baron of the Bonnie Banks, saved Lomond Shores from closure.

Debenhams saw a glimpse of hope when Mike Ashley’s Frasers Group confirmed over the weekend that it was in 11th-hour talks with the department store chain about a possible £200 million rescue deal.

Should the talks be successful, the deal could see Frasers Group operate Debenhams’ 124 stores under 12-month licences, and potentially save up to 12,000 jobs.

Ashley revived his interest in taking over Debenhams after JD Sports withdrew from acquisition talks last week and placed the 242-year-old retailer on the verge of liquidation.

Debenhams administration liquidation covid-19 jd sports pandemic lockdown mike ashley frasers group acquisition
Mike Ashley made various takeover attempts of Debenhams last year.

Despite founding his flagship Sports Direct chain in 1982, it’s only in recent years that Ashley has forged a track record of snapping up distressed high street brands to expand his retail empire. In the last two years alone, he has added Jack Wills, House of Fraser, Game, Sofa.com, and Evans Cycles to his portfolio – while also increasing his stakes in French Connection, Hugo Boss and Mulberry.  JD Sports’ withdrawal was partly linked to the administration of Sir Philip Green’s Arcadia Group, which is the biggest operator of concessions in Debenhams stores.

Arguably, Debenhams is the one that got away. Ashley grabbed headlines in 2019 for his various takeover attempts of the retailer in the run-up to its first administration.

At the time, Frasers Group was the largest shareholder of Debenhams, and its near-30 per cent stake – worth £150 million – was wiped out when the department store fell into administration and bought out by a consortium of lenders and banks known as Celine.

Debenhams administration liquidation covid-19 jd sports pandemic lockdown mike ashley frasers group acquisition
Debenhams blamed its latest administration on the first lockdown over spring.

When Debenhams fell into administration again in April this year, it was the second such insolvency in 12 months and less than a year since it implemented a CVA process that saw it shut down several stores immediately after Christmas and before the Covid-19 pandemic.

The retailer blamed the latest administration on the Covid-19 crisis and subsequent three-month, UK-wide lockdown that saw the temporary closure of all its stores.

Since then, Debenhams has scrapped around 6500 jobs – of which 2500 were confirmed in August alone – shut down 18 stores, and advisors were drafted to explore a sale of the business. The latter prompted a bidding war between various suitors, including Frasers Group and JD Sports.

With JD Sports now no longer in the running to acquire Debenhams, the retail industry expected administrators to begin a liquidation process that leave 12,000 staff jobless and hundreds and thousands of square feet of vacant units. Even after Frasers Group stepped in over the weekend and revived its interest, it warned that time was running out to save Debenhams and that the rescue talks were on a knife edge.

There’s a chance Frasers Group may only acquire part of Debenhams’ store estate rather than the full 124 sites, especially since there are numerous areas where it competes with rival House of Fraser. In fact according to Local Data Company, there are currently 17 towns that are home to both department stores.

However, this could create a dilemma for Debenhams’ current owners Celine – a group of hedge funds led by Silver Point Capital. It may be forced to decide whether to accept a low-ball offer in order to preserve as many jobs and stores as possible, while selling more than £100 million of stock and possibly auctioning off the brand, leases and website.

“Frasers Group already has considerable experience in turning around the fortunes of a struggling business, so we can expect that the lessons learnt during their own revival can support the comeback of Debenham as well,” said Rick Smith, managing director at consultancy firm Forbes Burton.

“Frasers Group has some experience in turning around their own fortunes. A lot of the lessons learnt when reviving Frasers will apply to Debenhams too. A steady hand is needed to navigate the troubled department store around.”

Debenhams administration liquidation covid-19 jd sports pandemic lockdown mike ashley frasers group acquisition
Mike Ashley acquired House of Fraser in August 2018 for £90m via a pre-pack deal.

Following the £90 million acquisition of House of Fraser in August 2018, via a pre-pack administration deal, Ashley went on to declare his ambitions to turn the department store into the “Harrods of the high street”.

Yet as Ashley attempted to pursue these ambitions, it remained unclear as to what kind of changes he implemented or would implement. In fact, Frasers Group faced criticism due to overhauled shop floors across the House of Fraser estate that resembling the layout of Sports Direct stores.

In addition, in its first annual update after acquiring House of Fraser, Ashley’s firm revealed that the department store made a staggering £54.6 million loss. Not only was it arguably the worst performer in Frasers Group’s stable of brands, it warnings that a large number of House of Fraser stores may shut down for good, especially if reforms were not made to the controversial business rates regime.

On the flipside, Frasers Group also revealed ambitions to create a Frasers department store chain – effectively an upmarket spin-off of House of Fraser that would see it open in brand new sites as well as current sites of the department store, but completely refurbished and rebranded.

Despite this, it can be argued that department stores have been struggling to keep up with the shift in consumer behaviour over the years – such as the dramatic shift to online, especially this year as workers have been forced to work from home due to the pandemic.

Smith said that should Ashley end up acquiring Debenhams, it was likely there would be a limited crossover of products featured on Fraser Group’s other e-commerce platforms. He predicted that the overall positioning of the brands would be different.

“This is not a story that ends with 124 stores still open in 18 months’ time”

“Fraser Group won’t want to dilute their own brand, so Debenhams will likely have a significantly different offering to help differentiate the two,” he said.

Caroline Dilloway, general manager of brand strategy agency StormBrands, said Ashley needed to offer customers “a genuine distinguishable reason” shop with Debenhams and/or House of Fraser.

“The Frasers Group portfolio should be mapped to ensure clear delineation between the retail brands in the group,” she told Retail Gazette.

“Frasers Group’s most progressive focus should be on the execution of a future focused channel strategy, viewing the mix of retail stores and online presence strategically to appeal to a vast and broad audience.

“Department stores, although today in a shrinking category, have long since been staples of British towns and cities, where online shopping has changed the face of high street purchasing and provided a lifeline for consumers during Covid.

“There are key lessons to be learned and advantages to be gained from each channel, if done well, and so a clever mix of both could be incredibly beneficial.”

Simon Geale, senior vice president for client solutions at business management firm Proxima, said there would likely be significant operating synergies which Frasers Group will be keen to take advantage of.

“Frasers Group are shrewd retailers that will make the tough decisions, take out costs, find a formula and invest in it,” he said.

“Like House of Fraser, Debenhams brings customers and stock to the table, which makes the revival of the chain a challenge that master retailers like Frasers may be prepared to accept.

“However, there will be no room for sentiment or cost wastage. This survival story needs to be about cost restructuring, speed and growth.

“There is a big restructuring job to be done which will look at every aspect of the business, from the range and the property portfolio to the online offering.

“This is not a story that ends with 124 stores still open in 18 months’ time.”

“Debenhams can bring exciting partnerships that could be complimentary to Frasers current offering”

Geale added that Debenhams needed to master how to make a large format store consistently profitable. In addition, he said the retailer has a huge online presence and can bring “exciting partnerships that could be complimentary to Frasers current offering”.

“Debenhams has made a lot of the right moves in the past, but the question has always remained whether it has made them as part of a proactive strategy or by playing catch-up,” Geale argued.

“Ultimately it has lost touch with millennials, and with these demographics holding much of the high street purchasing power, it needs to figure out how to reconnect with them to assure long-term survival.”

Liam Patterson, chief executive at marketing tech company Bidnamic, agreed. He said Debenhams has long been in decline and has repeatedly failed to adapt to changing customer habits. He also said Ashley may need to offload under-performing Debenhams stores and focus on creating a strong digital presence – should the deal go through.

“This means advertising heavily on platforms like Google Shopping and partnering with well-known influencers on Instagram and TikTok,” Patterson explained.

Undoubtedly, big department store chains are stumbling, but there may still be a gap in the market for a large format, experiential store. This is where Frasers Group can bring its experience to the table – you only have to look at how Sports Direct has grown to become a successful business (not ignoring the controversies of recent years, of course), while its upmarket fashion chain Flannels has partnerships with a stable of well-known labels.

If the criticism of Debenhams was that it was overly reliant on Arcadia Group’s concessions, there may still be an opportunity to bring new brands to the Debenhams shopper in their place.

The big question is in 12 months’ time – should the deal go ahead – what will Debenhams look like under Frasers Group’s management?

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