Ashley’s punt on the future of shopping is a good bet

Entrepreneur defies the odds to ensure Frasers is a big player in the brave new world of mixed online and bricks-and-mortar retail

There was a time when Mike Ashley could barely do right. His tracksuit and trainer empire looked to have run out of steam and politicians spent years gunning for him over working conditions in Sports Direct warehouses.

By the time the tycoon agreed to a grilling by MPS in late 2018, the company’s share price had plunged by more than two thirds from 800p in 2015 to less than 240p amid fears that it was unravelling under Ashley’s chaotic management.

Now seems like the unlikeliest of moments to stage a comeback. Chairman David Daly might be over-egging it with the suggestion that “geopolitical instability” represents much of a threat to tracksuit sales but he’s right that “soaring energy costs, rapidly rising inflation” and “a widespread cost of living crisis” present a “challenging backdrop”.

Yet Frasers, as the Sports Direct empire is now known, is on a tear, with Daly boasting of “strong strategic and trading momentum”. Having posted record-breaking full-year results over the summer, the company has just reported a 53pc jump in pre-tax profits from £186m to £285m in the six months to the end of October.

The fashion-house-cum-sports-emporium is also sticking to forecasts for annual profit of between £450m to £500m, which at the top end would be another 45pc jump, confounding long-standing concerns that Ashley’s deal making itch would eventually crater the business. It may also temper expectations that his decision to step down from Frasers’ board and hand the reins to 32-year-old son-in-law Michael Murray would prove to be a catastrophic error. Or it may simply be proof that Ashley, with 62pc of Frasers still in his hands, continues to pull the strings.

In the current climate it is tempting to assume the entire country is hurtling towards penury but the chain credits younger shoppers with recent form, pointing out that they are more insulated from rising energy bills and mortgage rates.

With its shares heading back to all-time highs of more than 900p, Frasers is investing £600m in a new distribution centre and offices in Coventry, potentially laying the ground for a move from its long-standing headquarters in Shirebrook, Derbyshire where conditions were once compared with a “Victorian workhouse” by MPS.

However, it may be a while before Ashley is accepted as an honorary Coventrian. He recently bought Coventry Building Society Arena out of administration, perhaps with more than one eye on the casino that it houses. But it is also where Coventry City football club play their home games, and after a row over the tenancy agreement, Ashley has served the team with an eviction notice.

The billionaire’s rivals may be surprised, perhaps even irritated, by Frasers’ resurgence, particularly as it contrasts so starkly with the struggles of many others.

His hard trading style was unfashionable during the pandemic. A ham-fisted attempt to keep stores open on the spurious basis that selling sporting and fitness equipment made it an essential retailer resulted in a humiliating climbdown and a grovelling public apology from the entrepreneur.

He also stuck with Frasers’ old-fashioned bricks-and-mortar model at a time when rivals were putting the turbo-boosters under digital growth in the belief that the online lockdown boom represented a permanent shift in shopping habits. Ashley sat out the stampede and now has money to spend on bombed out assets at cheap prices, including some of the trendy online upstarts whose prospects looked to have been buoyed by the pandemic.

Fast-fashion sites Missguided and I Saw it First, along with Saville Row tailor Gieves and Hawkes, have been added in quick succession to an unlikely assortment of names that includes House of Fraser, designer chain Flannels, Evans Cycles, and video games outlet Game.

In the past it has been hard to make sense of Ashley’s grand plan. His approach has often appeared to lack commercial logic and suffered from a distinct scattergun quality that even Frasers’ own finance department struggled to keep up with at one point.

Murray’s “elevation strategy” is an attempt to bring more focus and create the upmarket fashion house stocked with luxury brands that Ashley has long envisioned, or what the company somewhat pretentiously calls “the planet’s most admired and compelling brand ecosystem”.

It’s certainly miles away from the world of bargain golf umbrellas and supersized mugs with which Ashley made his fortune, but many of the big brands have come around to the idea, leaving Frasers positioned to be one of the big players in the new world of mixed online and high street retailing along with Next.

If only the City’s risk-averse fund managers had similar ambition. Shares in Frasers ended the day as the FTSE-100’S biggest faller after a 9pc dive, a response presumably to the company’s caution about the economic environment but also the £600m set aside to invest in logistics.

However, it is worth recalling what happened to Sky when it decided to junk profits so that it could afford to give customers free set-top boxes. The share price suffered, yet ultimately it was a move that laid the foundation for the broadcaster to become a £30bn stock market giant.

Similarly, investors in Frasers may baulk at the idea of a big spending programme as Britain stands on the cusp of a potentially long recession, but Next has demonstrated consistently the importance of a sleek distribution operation in responding quickly to demand. It is where the shopping battleground of tomorrow is.

‘Ashley sat out the online stampede and now has money to spend’