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Frasers Group buys Studio Retail out of administration for £27m

Studio will be able to get back to business after its acquisition by Frasers Group. Image courtesy of

Frasers Group has bought Studio Retail out of administration for £26.8m in a move that is expected to save about 1,500 jobs and enables the value retailer to get back to business.

“The administrators are of the opinion that the transaction was in the best interests of the company’s creditors as a whole,” says this morning’s announcement from Studio Retail administrators Teneo Financial Advisory. It says that given the company had temporarily stopped taking orders, “the transaction will allow trading operations to resume, ensuring continuity for suppliers, the group’s over 1,500 employees, pension holders and customers.”

In its own statement, Frasers Group says the acquisition brings it “expertise and synergies” that will “accelerate” its ambition of elevating its customer journey. It adds: “Frasers Group is also pleased to have rescued another business out of administration and saved approximately 1,500 jobs.”

In context

Frasers Group was already a significant investor in the value retail group, which trades as Studio and as Ace. In December 2020, Studio Retail put itself up for sale following a request from Frasers Group, which then held a 37% stake in the company, to explore its options in a strategic review,. The request came because Frasers believed the company to be undervalued. At the time, Studio Retail was reporting fast growth as shoppers moved online during the Covid-19 pandemic. Its revenues grew by 17.2% to £268m in the 26 weeks to September 25 2020, and its pre-tax profits grew by 199%.

Just over a year ago, Studio reported sales had grown by 32% in the third, Christmas, quarter of its financial year. By then it had 2.3m customers, and Studio Retail chief executive Phil Maudlsey said at the time that its “outstanding” performance demonstrated “the strength and attractiveness of our online value retail offer.”

Supply chain issues

But in recent months the retail group has been hit hard by supply chain issues, while at the same time its sales fell back from the lockdown-induced peaks of a year earlier.

Studio Retail paid higher shipping and port costs to stock up ahead of Christmas in the face of industry-wide supply chain issues. It added charter ships to the container shipping it already had contracted, and sourced goods via its own Shanghai office. But when some of the deliveries were late, hit by the global supply chain issues that hit the industry following Covid-19 lockdowns, it was left with leftover stock at a time of year when shoppers are generally spending less – and was looking to raise prices to cover its rising costs.

Despite its move to stock up for Christmas, Studio Retail said in a trading statement at the end of January that sales in the third – Christmas – quarter of its financial year, the 13 weeks to December 24, were 10% lower than the same time a year earlier, although 18% higher than in the same period in pre-pandemic 2019. Sales in the first eight weeks of the latest quarter had been 21% down on the previous year, a position that was somewhat turned around following stock deliveries, and in the final five weeks of the quarter, which included Black Friday, sales grew 9% on the previous year.

The retail group already had a fully drawn credit facility of £50m and when its lenders would not give it access to a further £25m in working capital that it said it needed to get past that period, it took the decision to call in administrators. Those administrators, from Teneo Financial Advisory, have now been appointed and brokered a swift sale to Frasers Group.

The Frasers Group fit

Frasers Group says that the Studio Retail deal represents another job-saving rescue of a business in administration. The group has in recent years expanded across the high street through a strategy of buying ailing retailers out of administration. In 2018, it bought House of Frasers and Evans Cycles out of administration, followed in 2019 by Game and Jack Wills, also bought from administration.

But by 2021 it was counting the cost of owning more than 1,500 stores, with associated costs from business rates to the cost of Covid-19 lockdowns. In its last full-year figures, to April 25 2021, it reported an 8.4% fall in group revenue to £3.6bn, while pre-tax profits were 94.1% down at £8.5m, “largely due to the effects of the Covid-19 pandemic including the closure of retail stores, the associate provisioning, and impairment and depreciation and amortisation charges”. In all, it wrote down the value of its property by £317m during the year, taking into account trends including Covid-19 lockdowns and rising costs as a result of Brexit, and changes in customer behaviour as they shifted from buying in stores to online shopping and bought direct from brands.

The Studio Retail acquisition, by contrast, brings with it no stores. But neither does it apparently fit Frasers Group’s strategy of “elevation without limits” to take its business upmarket in order to attract more prestigious brands to its retail stores from House of Fraser to Flannels and Sports Direct. Instead, says Frasers Group, Studio brings with it expertise in offering a “flexible repayment proposition” – or credit accounts – that it hopes to benefit from as it moves its brands upmarket.

“As Frasers Group seeks to elevate its customer journey including a flexible repayment proposition, the acquisition of SRL [Studio Retail Ltd] will provide Frasers Group with expertise and synergies that will accelerate this ambition,” Frasers Group says in today’s statement. The suggestion is suggest that the retailer aims to offer new credit payment options to encourage shoppers to buy the more expensive products that it will now be selling.

Studio Retail’s shares were cancelled this morning. The acquisition also means that Frasers Group will act as guarantor for a number of payments into the Studio Retail pension fund.

Jack Wills is ranked a Top50 retailer in RXUK Top500 research, while Evans Cycles and Game are Top100, House of Fraser Top150, Sports Direct Top250 and Flannels Top350.

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