Frasers, Missguided and Shein: A tale of shifting dynamics

With annual revenues of £5.5 billion and pre-tax profits of nearly £480 million, Frasers Group has a formidable portfolio of retail assets spanning Sports Direct, House of Fraser, and a string of brands such as Jack Wills, USC and Evans Cycles. The company also has an active retail property portfolio, and has been building up stakes in various online retailers such as Boohoo, Asos and AO World.

All of that, however, is dwarfed by the selling power of Shein which reported annual revenues of nearly £19bn last year and has projected that this will rise to just shy of £50bn in 2025. Companies House accounts for its British arm, Shein Distribution UK, show £1.1bn in revenue and £12.1m of profit for the 16 months to December 2022.

READ MORE: Frasers Group sells Missguided brand to Chinese giant Shein

In that same month Shein overtook Zara to become the most frequently Googled fashion retailer in the world, according to keyword data analysed by price comparison website Money.co.uk.

But Temu has been clocking up meteoric growth growth fuelled by an astronomical marketing budget that urges consumers to "shop like a billionaire". Since launching in the US in July of last year, the Chinese shopping app has captured more than half of Shein's market share in that country.

The battle has spilled over into the US courts with the two companies suing each other over alleged anti-trust activity. Shein first accused Temu of misleading consumers into thinking they were the same brand, then Temu accused Shein of “exclusionary practises” that included forcing its suppliers to sign exclusivity contracts which Temu said hindered its commercial growth. Both have rejected the allegations against them. 

Owned by China's PDD Holdings, Temu launched globally in September 2022 and started selling in the UK in April of this year. Industry insight from analytics company data.ai shows that as of September 16 Temu was riding a five-month streak as the number one shopping app by downloads in the UK with roughly 7.64 million downloads in total. 

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It also rose from fifth to third in the UK rankings of  shopping apps by number of active monthly users, overtaking Shein in the process.

Not surprisingly, legal clashes have ensued on this side of the Atlantic as well with Shein filing a lawsuit in London’s High Court accusing Temu of copying thousands of images from its website. Shein has sought an injunction against Temu sellers copying its images and demanded all the violating listings be taken down, plus £100,000 in damages.

Industry experts believe the Missguided deal could help Shein deepen its penetration and develop a wider customer base in the UK market, where it is already predicted to be on course to break into the ranks of the top 10 clothing retailers in 2023.

As for what's in it for Frasers, Mr Murray noted that the group will continue to "have a foothold in women's digital-first fashion" through its other brands I Saw It First and Missy Empire.

“Retaining the combined Frasers fashion teams whilst rationalising our portfolio in this space to focus on fewer brands makes a lot of sense in the current climate,” he said.

“We are also excited about the ongoing discussions around further collaboration between Frasers Group and Shein.”

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said streamlining "does make sense" but the deal looks to be aimed primarily at "helping Frasers grab onto the coattails" of Shein's huge success. By retaining Missguided's real estate and employees, the group appears to be hopeful of creating a deep well of global opportunity going forward.

READ MORE: Management defects at Missguided do not explain all fashion industry issues

"It could mean Frasers will be used as a bricks and mortar hub for the Chinese firm, which is aggressively expanding its footprint across the world," Ms Streeter 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 ESG risk to Frasers Group."

Expectations are that with the acquisition of its first UK brand, there will be a good deal more scrutiny over Shein's supply chain practices. There are also hopes that the deal will open up opportunities for UK manufacturers as Shein seeks suppliers closer to its growth markets.

The Shein and Temu platforms operate in a similar manner in that both offer items direct from primarily Chinese suppliers who make short production runs in response to customer interest. The main difference is that while Shein directly contracts suppliers to make the orders, Temu acts more like a bridge that allows suppliers to focus on their production run while the platform manages product listings, marketing, and logistics.

There is widespread scepticism as to how long Temu can sustain what is currently a loss-making business model focused solely on customer acquisition, which probably made Shein a more attractive partner in Frasers' eyes.

But selling to Shein puts the UK retailer in a potentially odd position where Missguided will be competing with natural market rivals Asos and Pretty Little Thing.

Frasers has been actively building up its stake in Asos, which currently stands at 23%. It has been doing the same with Boohoo, owner of the Pretty Little Thing brand, having earlier this month increased its holding from 15.1% to 16.5%.

With its fingers in so many pies, Frasers has worked its way to the epicentre of one of the most interesting and challenging periods in the history of UK retail. It will be fascinating to see how the story unfolds.