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Jun 08, 2023

Frasers hoovers up another £5m of Boohoo shares

Retail giant Frasers Group has upped it stake in online fashion firm Boohoo. Frasers has spent over £5m to increase its shareholding from 7.8% to 9.1%, it emerged this morning (August 31). Frasers has

Retail giant Frasers Group has upped it stake in online fashion firm Boohoo.

Frasers has spent over £5m to increase its shareholding from 7.8% to 9.1%, it emerged this morning (August 31).

Frasers has been gradually hoovering up Boohoo shares over recent months and is also now the largest shareholder in Bolton-based white goods retailer AO World.

In June, the firm described Boohoo as “an attractive proposition to us with its laser focus on young female consumers” and said it saw “potential synergies and an opportunity to strengthen our own brand proposition in collaboration”.

Russ Mould, investment analyst at AJ Bell noted that a dealmaker like Frasers boss Mike Ashley has taken advantage of the relatively quiet market conditions to pick up shares noting that the stock has been trading at their lowest price in eight years, but also that many retail trends have gone against Boohoo’s business model.

“Dresses-to-tops specialist Boohoo has seen its share price fall 91% since April 2021 after its success story derailed. Growth has slowed, with sales being hit by the cost-of-living crisis, while it has faced heightened competition and the business has struggled with intense cost pressures.

“More people have gone back to shopping on the high street since the end of the pandemic, preferring to try on clothes before buying rather than ordering them blindly off the internet. That’s hurt online-only sellers like Boohoo.

“Furthermore, the fast fashion business has come under scrutiny as more people make ethical considerations and try to avoid buying items that might be cast away after one use.

Ashley’s motive for buying the stake is unclear. Mould thinks it could either be opportunism, or it may open the door to a closer strategic relationship between the businesses.

“Mike Ashley-founded Frasers has developed a reputation for being a vulture – picking at the bones of businesses when they are down. While buying assets out of administration is its preferred modus operandi, it also likes buying equity stakes in companies when their shares are weak.

“Frasers is constantly looking for ways to offer a broader range of products to its customer base and there is a natural crossover between people who shop at Sports Direct and Boohoo.

“Both sets of customers want casual clothes that don’t cost a lot of money, so there might be an opportunity to put Boohoo’s products into Sports Direct outlets, making it a win/win situation for both parties. Sports Direct would give shoppers another reason to visit its stores, while Boohoo gets to benefit from having a distribution channel on the high street.

“This is all theoretical – it may simply be that Frasers believes Boohoo’s shares are too cheap and it is buying them purely as an investment, with the intention of selling them if the shares go up in value. However, what’s certain is that Frasers is watching the share price closely as it has been regularly buying more stock all summer.”