Business and nature have a lot in common, in the sense the bigger fish often eats the smaller fry.
Most recently, the likes of Mike Ashley’s Frasers Group and the king of retail Next have embarked on a buying spree, snapping up the likes of ISawItFirst for Frasers, while Next is rumoured to be in talks for failing retailer Joules.
Buying smaller brands isn’t something new, with the pair grabbing any opportunity with both hands that may have presented themselves over the decades.
Often, but not always, these brands are seemingly on the brink, with weak underlying numbers and falling share prices.
What does Frasers own?
Frasers, under the stewardship of Ashley, acquired a host of brands since it was formed in 1982 under the name Sports Direct International.
One of its earlier purchases was sports brand Donnay for £40mln in 1996, swiftly followed by Kangol, Karrimor and Lonsdale throughout the mid-2000s.
More recently, however, the group acquired luxury retailer Flannels in 2017 and Jack Wills in 2019 for £12.8mln.
This year alone, Frasers snapped up the assets of online retailer Missguided for £20mln, as well as building stakes in ASOS and Hugo Boss.
What does Next own?
FTSE 100 retailer Next has been less active than competitor Frasers, but that doesn’t mean it has been quiet.
Last year, it acquired a 25% stake in competitor Reiss, valued at £200mln, while the year before that it saved Victoria’s Secret, buying a 51% stake in the lingerie company.
Aside from that, it bought fashion brand Lipsy in 2008 for £17mln, as well as agreeing to acquire a stake in baby and maternity clothing retailer JoJo Maman Bebe in April this year.
Next was also in talks to acquire Joules, the clothing and homeware group before talks broke down.
However, with Joules’ future uncertain, Next may be looking to dip back in.
Why do big retailers buy failing brands?
While underlying numbers may seem to be failing, the strength of the brand itself can still be strong and offer plenty of opportunity for the bigger players.
“It's important to differentiate between the strength of the brands themselves and the underlying financial and operating performance of the businesses,” said Adam Tomlinson, consumer analyst at Liberum.
“Looking at a lot of the names, when Frasers buys Jack Wills or Evans, or when Next takes a stake in Reiss, these are still strong brands that resonate well with consumers.”
“Strong retailers tend to consolidate weaker ones over time, but sometimes that weakness is not the brand but the management or its ownership structure, which means that in the right hands it can flourish.
"So, M&S is making Jaeger work, whilst Next is doing so with Victoria's Secret in the UK,” said Clive Black, retail analyst at Shore Capital
“Where they (smaller companies) have tended to come unstuck is that the operating environment has changed significantly, including the increase in competition, how consumers shop and the cost of doing business,” Tomlinson added.
“For many smaller standalone brands that means the economics have become a lot less favourable.”
Some of those issues include increased competition in the sector as well as a large cost base, impacting the underlying numbers of these smaller, single-brand companies.
That is where the big fish see the value and if current market conditions continue so seemingly will the feeding frenzy.