A positive set of results from a fashion retailer is nothing short of a miracle given the current economic outlook.
Yet, that’s exactly what Mike Ashely’s Frasers Group PLC (LSE:FRAS) posted this morning, sending its shares surging 20% to 897.5p.
The Sports Direct owner posted adjusted pre-tax profits of £344.8mln for the year ended 24 April, a marked improvement on the loss of £39.9mln just 12 months prior.
Revenue climbed almost 31% to £4.7bn, with the group thankful for the reopening of its brick-and-mortar stores post lockdown.
Perhaps the most surprising thing, given the economic backdrop and cost-of-living crisis that shows no signs of abating, was that it is confident of achieving “healthy growth” in profit for the current financial year, the strongest sign possible of the belief the company has in its short-term success.
Now, while Ashley may have made some questionable decisions in the past, including the purchase of Debenhams from administrators, no one could dispute that as a shopkeeper he knows his onions, according to Clive Black, vice chairman of Shore Capital.
However, even excellent shopkeepers are at the perils of a lack of consumer confidence and rising inflation.
So, while we are in the midst of the profit warning season and slowing growth, what exactly is Frasers doing right?
Blurred lines
Frasers’ was hit particularly hard during the lockdown period, with some industry experts attributing much of the progress made over the last 12 months to the re-opening of stores.
However, the group’s strategy under new chief executive Michael Murray, who also happens to be Mike Ashley’s son-in-law, is built on improving the shopping experience, which it is on track to do, according to Laura Hoy, an equity analyst at Hargreaves Lansdown.
“Frasers is a great example of leveraging omnichannel shopping, blurring the lines between online and instore to offer a comprehensive experience,” said Hoy.
“We always focus on the bricks and mortar with online as an added benefit from the brand. [Physical retail] is a special experience which fundamentally everyone wants even if they say they don't think they do," said David Al-Mudallal, the chief operating officer in an interview to Drapers last October.
The omnichannel services include an app where consumers can access all of Frasers’ brands, from Sports Direct to Flannels, with the key point being you can order online, return in-store, and collect loyalty points for shopping.
Omnichannel methods such as this, of course, are built on the idea of getting customers through the door to spend, while also seemingly giving them the convenience of shopping online.
However, according to Hoy, this is a tactic that is not without risk and though early signs are promising, it is far too soon to say whether it will be a success long-term.
“There’s a lot of execution risk that comes alongside this strategy though, and it’s still early to say whether it will pan out particularly given the structural decline in in-store shopping.”
Better insulated
But is it just that people are heading downmarket during tough times?
Sports Direct is often seen as a discounted sports clothing retailer compared to JD Sports and the Frasers' name reflected a desire to appeal to a better-heeled customer as did the acquisition of Flannels.
Hoy argues that, while the cost of living crisis will bite, Frasers is “well positioned.”
“The cost-of-living crisis will also take a toll, though the group’s Sports Direct brand is well positioned alongside ABF’s Primark to capitalise on shoppers looking for lower-price items.”
“We’re also encouraged by the group’s foray into luxury with Flannels, another pocket of retail that should be relatively insulated in the current environment.”
According to Russ Mould, an investment director at AJ Bell, “one would have guessed sportswear and equipment sales might be vulnerable to a deteriorating economic climate.”
However, as Mould points out and agrees with Hoy, the blend of “pile ‘em high, sell ‘em cheap Sports Direct stores and posher, upmarket outlets,” leaves Frasers well insulated to tough times.
So the question ‘what is Frasers doing differently to the rest of the retail sector,” doesn’t boil down to one specific thing that can easily be replicated across the sector.
Its diversified offering coupled with its new omnichannel strategy means it can cater to the whole spectrum of customers, key selling points during tough times.