THG and Frasers combine forces to make retail more profitable

Mike Ashley’s Frasers Group forged an agreement with THG, which will make it the first third party retailer to use their buy-now-pay-later product.

The multi-year agreement will see the online retail company behind brands such as Cult Beauty, Myprotein, and Myprotein integrate Frasers Plus’ customer service program and loyalty program, Frasers Plus, onto its Ingenuity platform.

Frasers also agreed to purchase THG’s luxury goods sites, including Coggles. They will also sell THG’s protein products at Sports Direct. The companies refused to reveal the value of these deals.

This is Frasers latest attempt to boost its premium offering which includes Flannels, House of Fraser and its “elevation” strategy.

THG’s luxury business, which includes brands MyBag, Allsole and MyBag, reported that it made sales of about £43million last year, and was essentially break-even.

Michael Murray, Frasers’ chief executive, described the deal as an “exciting first step” for his company in financial services.

Frasers Plus is the first company to integrate its credit offering with a third party. The group is believed to be looking to increase this part of its business to compete with Next and Klarna.

Frasers recently pitched its new product, Buy Now, Pay Later, to some of Britain’s largest online retailers. These include Asos Boohoo Currys and AO. This gives some insight into why Frasers is building substantial stakes in these companies.

As part of this tie-up, THG’s Myprotein will now be available in Sports Direct.

Frasers Plus is a credit service based on an app that allows customers to pay in three monthly interest-free instalments. The interest is charged at 29.9% APR. Frasers retailers offer the service as a way to pay, from Evans Cycles and Flannels.

Frasers has reportedly told retailers that their service is free, unlike Klarna which charges merchants an average of 2.6% of the purchase price. It also pointed out that it was regulated by Financial Conduct Authority. Other buy-now-pay-later services , including Klarna’s, were not.

A source close to Frasers said that the retail giant “wants to create a finance company like Next and use revenue and customers from other companies to scale.” Frasers asks that companies put Frasers Plus onto their websites when it buys a share or makes a placement. “Until now, the majority of companies have refused to accept Frasers Plus on their own websites.”

Mike Ashley’s group is looking to compete in the financial services market with Next and Klarna

Frasers approached some retailers who are hesitant to give their customer data to competitors. Some retailers, such as AO, have exclusive agreements with other credit providers. A source told The Times, however, that Boohoo is on the brink of implementing Frasers Plus payment options.

Analysts say that Frasers has already proven that it’s good at selling to consumers, and wants to show that it can also do it with payment solutions.

Analysts cite the example of a competitor who sells homeware and clothing, and made PS163million profit on its credit offer over the last financial year. This shows the importance of diversifying into new sectors, and doing more than just putting products in the shelves.

Some have warned, however, that the market is highly competitive, with several established players, including PayPal and Klarna. These are payment methods people associate today as their default.

THG will benefit from the partnership by gaining access to customers for its retail technology and a market for its products including Myprotein. Frasers will be using THG to manage couriers and run its Australian delivery operations.

Matt Moulding is the chief executive of the company and its founder. He did not reveal much about the reasons for selling the luxury business. However, it has become apparent in recent years that its main focus is other areas than directly operated luxury ecommerce.

He added: “Our luxury brands portfolio, including Coggles, has grown since its inception 11 years ago. We are excited to see it grow further as a client of Ingenuity.”

Coggles was founded in York in 1974 and became an independent boutique. In 2013, the company bought itself out of bankruptcy. The shop sells women’s and men’s clothing and shoes, as well as home products.

The Ingenuity division of THG helps brands such as Elemis, Coca-Cola and others to sell online. Beauty and nutrition are two of the company’s major divisions.

THG has been struggling ever since its listing on the London Stock Exchange in 2020. The company was valued at PS5.4 billion. Since going public in 2020, the company has lost 90 percent of its market value. This is due to poor sales and a string of disputes over corporate governance.

Matt Moulding’s group is under attack by activist investors and short-sellers

Moulding blames the troubles of the company on hedge funds, short sellers and negative media coverage.

Kelso Group is an activist investor who has repeatedly claimed that splitting THG into three divisions would help boost its share price up to 225p, and reach a market value of around £3 billion.

The group urged the online retailer to separate its Myprotein business from other parts of the company, as this could be a target for a takeover. Investment group suggests that Nestle, Coca-Cola and PepsiCo could be potential buyers.

Andrew Wade, Jefferies, said that the agreement with Frasers allowed THG to “tidy” up its brand portfolio. It was also a “very logical value-adding partner which opens up clear revenue possibilities”.

Peel Hunt analysts said that the partnership will “move THG toward stable, sustainable (free cash flow) generation, which is one key to unlocking the share price”.

The Manchester-based group announced in a separate trading report on Monday that the positive momentum of its beauty division had continued through the first half. “Customer engagement is continuing to improve across THG Beauty, with a 45 percent increase in app downloadings and an increasing loyalty program membership”.

THG stated that its Ingenuity division “momentum continued to strengthen”, backed by a faster growth of third-party revenues in the second quarter than the first. The company said that the first-half growth was “widely spread across new and existing customers, technology, digital marketing, and fulfilment services”.

Lord Allen of Kensington was reelected as chairman of the group at its annual general meeting held on Monday. Only 9.25 percent of shareholders voted against it, despite Kelso’s opposition.

THG shares closed at 62 3/4p up 1p or 1.5 percent. Frasers gained 33 1/2p or 3.8 percent to 903 1/2p.