Frasers Group in the firing line after profit warning

Frasers Group, the owner of Sports Direct, is not the only retailer set to suffer now that new Covid restrictions have been introduced. Matthew Partridge reports

Frasers Group’s shares plunged by 10% this week after it “sounded the alarm” on profits, says Laura Onita in The Daily Telegraph. The news followed store closures in London and swathes of the South East due to the new Tier 4 rules . 

The retailer, which owns chains including Sports Direct, House of Fraser, Evans Cycles and Game Digital, said its previous guidance from earlier this month of a 20%-30% rise in annual profits was “unlikely to be achieved”. The new rules mean that many shops will be forced to close to customers yet again and there is a “high likelihood” of “further rolling lockdowns” over the next few months. 

The new restrictions closing all non-essential retailers will hit Frasers particularly hard since it is “heavily reliant” on “bricks and mortar” high-street sales, unlike online-only rivals, says Jim Armitage in the Evening Standard. The disruption may also have a knock-on effect on its plans to buy parts of the Debenhams and Arcadia businesses now up for sale. While it could make the brands “even cheaper”, Frasers’s problems mean that its “financial firepower” could be reduced. Already it looks as though Arcadia will be sold off “piecemeal”, with Australia’s City Chic agreeing to buy Evans clothing.

Clothing sales plunge

Of course, Frasers Group isn’t the only retailer to be affected by the change in plans, says the Financial Times. The share prices of Next, Ted Baker and Superdry have all been hit. The new restrictions are particularly painful since they come during the peak trading period in the run-up to Christmas.

The November lockdown has already caused a lot of damage, with clothing sales falling by nearly a fifth compared with the previous month, says Phillip Inman in The Guardian. Sales of household goods rose by 1.6% and many online operators reported booming sales, with internet-shopping now accounting for 31.4% of all spending, “an increase of almost 75% since November 2019”. But this was partly due to “heavy discounting”. Overall retail sales fell by 3.8% month-on-month. 

Even if retailers can keep selling during Tier 4, they are increasingly relying on consumer credit, says Graham Ruddick in The Times. While credit allows shoppers to spread the cost of items in a “manageable way”, there has been “dramatic growth” of such schemes, either directly or through financial technology companies such as Klarna. More than 70% of Next’s sales in the first six months of the year were made on credit. With the FCA, the City regulator, due to report on unsecured credit next year, companies could be forced to change the way such schemes are run.

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