30th Oct 2023 14:05
(Alliance News) - Frasers Group PLC on Monday announced a deal which could see it work closely with Shein further down the line, something which analysts believe could reap long-term benefits.
The Shirebrook, England-based owner of the House of Fraser, Sports Direct and Flannels retail chains has agreed to sell its Missguided assets to Shein, a popular fashion and lifestyle e-retailer.
Shein will acquire both the intellectual property and trademarks of Missguided, for an as-yet unspecified price. It plans to licence the intellectual property to Sumwon Studios, its joint venture with Missguided's founder, Nitin Passi.
Meanwhile, Frasers will retain Missguided's real estate and employees, which have been integrated into its fashion division.
On Monday, Frasers Chief Executive Officer Michael Murray told investors that retaining the combined fashion teams whilst "rationalising" the portfolio made "a lot of sense in this current climate".
More important by far, however, was Murray's claim that the sale has enabled "exciting discussions" with Shein around collaboration opportunities.
While some might consider it an "odd move" to be working closely with "an arch-rival", Frasers seems to understand the benefit "in having greater distribution reach", said Russ Mould, AJ Bell's investment director.
According to Mould, the sale of Missguided assets to Shein could give Frasers a "foot in the door" to a "close working relationship" with the Chinese fashion retailer.
A partnership with Shein would almost certainly be beneficial for Frasers, as firms such as Asos PLC and boohoo Group PLC, which Frasers has stakes in, have struggled to match the Chinese seller's aggressive pricing and youthful appeal.
"Frasers could feasibly be interested in a distribution deal whereby it can sell its products on Shein's platform, while also using its Sports Direct and Flannels stores as a potential return hub for the Chinese partner. The more people coming through its doors, the more opportunities it has to try and sell its products," Mould added.
Other analysts echoed this notion.
Shore Capital's Eleonora Dani said the sale could be "a precursor to leveraging Frasers' expansive UK store portfolio". In this scenario, Frasers would benefit from "the footfall generated by Shein shoppers", while Shein would leverage Frasers' physical stores "as an entry into traditional retail channels".
Shore Capital rates Frasers at 'buy', with a price target of 795 pence.
Hargreaves Lansdown's Susannah Streeter was similarly optimistic, but warned investors of Shein's reputation as an environmentally irresponsible manufacturer.
"Streamlining the number of fashion brands on [Frasers] online platform does make sense," she said.
"However, Shein has come under significant criticism for the huge volumes of cheap clothes it produces, the lack of transparency in its supply chain and its appropriation of other designers' work, so this kind of partnership would not come without [environmental, social, and corporate governance] risk to Frasers Group."
Frasers shares were up 1.3% at 805.50p each in London on Monday afternoon.
By Holly Beveridge, Alliance News reporter
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