Dismiss Mike Ashley's business strategy at your peril

There’s a Toys R Us store on the roundabout where the A12 meets the A14 in Ipswich which signals that I am on the home stretch - about 40 minutes away from my parents’ house in Thorpeness. I never actually went into the store, but when Toys R Us filed for bankruptcy and announced it would be closing all of its UK premises, I was concerned: what sign would be welcoming me home now?

Seven years have passed and the massive retail site still stands empty. But the Toys R Us sign remains on the outside, so there has been no change for those of us who use the premise merely as a beacon welcoming us back to Suffolk.

But it’s not great for Ipswich, whose Borough Council owns the building. It’s true that this site has never been the recipient of much foot traffic, but it sits on a major road intersection and the fact that there has been no demand to fill the space is a worrying reflection of the health of the physical retail market in the last few years.

The predicament also continues to be captured by John Lewis. This week, the company reported that revenues (total trade sales minus VAT) fell 4% year-on-year at its department stores. And despite the fact that growth in the Waitrose division managed to rescue the company from its second consecutive year of painful losses, there still wasn’t enough money left in the coffers to pay its partnered staff a bonus.

The company is also suffering a bit of an identity crisis. Sharon White will be the shortest serving chairman of John Lewis when she leaves her role in 2025 after just five years. But for some in the company, that might not be soon enough. On joining, she pledged to build and rent out 10,000 homes as part of plans to generate 40% of company profits from non-retail operations. She also set targets around financial services products to help the company move away from its reliance on retail operations. But in these numbers, she’s said that the company will be “unashamedly” focused on its retail offering.

John Lewis used to be seen as a bellwether for the state of the UK retail market, but it’s not anymore. Inconsistent strategic decision-making is not helpful for any company, especially one struggling with market headwinds.

Consistent focus pays off

But perhaps those headwinds are partly of John Lewis’ (and other laggards) own making?

One retailer which has never wavered from the high street is Frasers Group - formerly Sports Direct - which tends to divide opinion, owing largely to the ‘personality’ of its founder, Mike Ashley.

During the pandemic, while peers rushed to the temporary safety of online retail channels, Ashley stood firm on his stance that Sports Direct was “a bricks business, not a clicks business”, citing the value that physical retail sites had in communities. Sales fell in the 2021 financial year (Frasers’ reporting calendar runs from April to April, so FY2021 perfectly captured the worst of the lockdowns), but have still risen at a compound annual rate of 11% since 2018. Retail channel demand has undoubtedly shifted in that period, but more recent trends seem to show that Ashley was right to stick to his guns on the value of physical retail.

Internet sales as a percentage of total retail sales in the UK climbed sharply between the end of 2006 (when they were 2.8%) and the end of 2020 (when they were just under 40%), but the growth has levelled off since then. Exclude the November spikes (when Black Friday takes place) and the proportion of online sales has stuck at around 25% for the last few years.

In that time, while its peers have panicked and turned their backs on the high street, Frasers has invested heavily in physical retail. The company bought House of Fraser and Evans Cycles in 2018 and the remains of the Arcadia group of businesses in 2020. In 2021, it opened its new flagship Oxford Street store (which enjoyed a £10m tech-heavy makeover to improve the experience for customers) and followed this with two new city centre ‘experiences’ in Manchester and Birmingham in 2023.

It’s not as though there isn’t an online offering. The acquisitions of MissGuided and I Saw It First have helped keep the company’s digital side on track. Frasers also has a 5.5% stake in Asos (a former pioneer of the online retail world), worth £40.5m.

Investing in listed peers is another hallmark of the Mike Ashley business strategy. And this has two potential upsides. The first is that the investment grows, leaving Frasers with healthy profits. For example, when it traded as Sports Direct, the company had a large stake in its peer JD Sports - which has been one of the most successful stocks in the UK in the last decade. The second is that the company goes bust, at which point Frasers is well positioned to buy what’s left at a rock bottom price. That’s the strategy it’s taken with the purchase of many of its brands, and it could be what has prompted the investment in Asos.

Meanwhile, the company is reportedly in talks to take up residence at a retail premise in Ipswich. If its destination is the A12 roundabout, I might even be tempted to stop next time I am driving home.