THG and Frasers strike strategic partnership

THG has sealed a multi fronted partnership with retail group Frasers ahead of its AGM this morning.

The move is just the latest in a string of strategic moves by both parties to bolster their often controversial and outspoken reputations in the cut throat retail market.

THG will sell its luxury division, including the retail brand Coggles to Frasers for £43m and continue to provide ecommerce and fulfilment services through its Ingenuity platform.

A wider deal for Ingenuity to service Frasers in Australia, and sell MyProtein products in Sports Direct stores “further broadens the Myprotein brand appeal, bringing the rapidly growing Hyrox community to both Myprotein and Sports Direct alike” the company said.

Also thrown into the deal is an agreement for Frasers credit and loyalty platform, Frasers Plus, to be integrated into Ingenuity’s checkout and be available to both THG’s Beauty and Nutrition customers, as well as to Ingenuity clients. 

For THG, it is designed to be welcome good news on the morning of its AGM later today where a small number of activist shareholders voted against the reappointment of Charles Allen as chairman.

For Frasers, it marks a step up in their ecommerce strategy and an added push into luxury products.

Michael Murray, CEO Frasers Group said: “Today we are pleased to announce a new strategic partnership with THG, which includes launching our consumer credit and loyalty proposition, Frasers Plus across the THG Ingenuity platform. This is an exciting step towards our Frasers Plus ambitions as we look to expand its offering across additional third-party platforms. We are looking forward to working with the THG team and unlocking further benefits for both businesses.”

Matthew Moulding, CEO of THG commented: “We are delighted to be partnering with Frasers Group across a broad range of initiatives, in particular bringing Frasers Plus to consumers shopping with Ingenuity clients, as well as to our own retail sites including Lookfantastic, Cult Beauty and Myprotein. Our luxury brand portfolio including Coggles has grown from a standing start eleven years ago, and we are eager to watch it develop further as an Ingenuity client. The success of Coggles has only been possible through the hard work and dedication of THG’s luxury team, to whom we all want to extend our thanks and gratitude.”

From a standing start almost 11 years ago, THG’s luxury division grew to c. £43m sales and broadly break-even for FY 2023, despite a broader challenging luxury market. 

Matthew Moulding

However, Moulding later added on LinkedIn that Coggles now “needs a big step up in investment, support and energy if it is to become a major global player. But even if we did commit to this,” and that “there’s no certainty that all the major luxury brands would join Coggles over time.”

He described Frasers as a “force in luxury fashion” and said they have “big plans” for the sector.

“By selling Coggles to Frasers and agreeing Ingenuity partnerships, THG now has a chance to play a bigger role in the luxury sector,” he said.

In a trading statement THG also said quarterly growth will represent the third consecutive quarter of year-on-year (YoY) revenue growth. Performance is underpinned by positive trading within the Beauty, external Ingenuity and offline Nutrition businesses.

THG also pointed to “positive momentum” in THG Beauty division, with a +45% increase in app downloads YoY, and increasing loyalty programme membership; deals with Costco and GNC in the US, as well as across major UK grocers, Boots and WHSmith for THG Nutrition; and an acceleration of third party revenue growth in THG Ingenuity.

Market analysts were quick to seize on the long term strategic importance of the partnership for both parties.

“On the face of it, Frasers entering a payments and logistics partnership with THG might not seem exciting, but this could be strategically important for Mike Ashley’s empire,” said Dan Coatsworth, investment analyst at Manchester-based investment platform, AJ Bell.

“Frasers has already shown it is good at selling products to consumers, now it wants to be a bigger player in the payments game. Having THG as a partner gives it a shop window to show off its skills and potentially encourage more shopkeepers to sign up.

“Frasers is hoping third party retailers will use its buy now, pay later product as that would provide an additional income stream. The proposition is already live with Frasers’ own retail brands and signing up THG is a big step forward as it represents its first external partner.”

He added: “A lot of people have wondered why Frasers has taken equity stakes in third party retailers in recent years but not made takeover offers. Swapping ideas on best practice, seeking ways to increase distribution of Frasers’ products, and Mike Ashley simply having an eye for a bargain and hoping to make a few quid as investment were among the suggestions. Now we might have another reason.

“Frasers owns stakes in a number of retailers including AO, Boohoo, ASOS, Hugo Boss, Currys and Mulberry. As a major shareholder, it should be able to command an audience with the people running these businesses, and that provides an opportunity to try and sell them its buy now, pay later proposition.

“Rival retailer Next made £163m profit from its credit offering over the past financial year, demonstrating the value of doing more than simply putting products on shelves and getting them into consumers’ homes. That’s a decent contribution to its group profit and certainly something that will have caught Frasers’ eye.

“While it’s unusual for a retailer to offer financing to rivals, Frasers clearly sees an opportunity given how consumers are increasingly using buy now, pay later as a purchasing channel. It means Frasers could still clean up even if people are not buying its physical products.”

He said: “It’s not going to be an easy battle to win as the marketplace is highly competitive. Third party providers like Klarna and PayPal are already established partners for retailers around the world with their buy now, pay later schemes, and they are names which the general public now associate as default payment methods. However, Frasers might still have a chance to muscle in on the market, particularly as its service to retailers is free unlike some of the big name rivals.

“Customers have three months to pay back the money without being charged interest, but those who don’t clear the full balance during this period subsequently pay 29.9% annual interest which is where Frasers makes money.

“Frasers has come a long way from its days as a pile ‘em high, sell ‘em cheap sportswear retailer. A subsequent move into luxury products, sofas, gaming, gyms and cycling illustrate how a focused, ambitious company can spread its wings and become a bigger beast.

“Financing is a natural evolution and it will certainly not be the last initiative to bring in more money for the group.”