Is Flannels "strangling" the UK's premium fashion sector?

Frasers Group’s domination of the UK’s premium fashion sector will decimate independent retailers. The power of Mike Ashley’s Flannels chain in particular will suffocate small boutiques, strangle smaller suppliers’ route to market, and limit customers’ choices. Even the reputation of well-known brands in Flannels is at risk because of Ashley’s tendency to discount prices. 

So say critics of Frasers Group, who believe via Flannels, the younger-profile chain USC and House of Fraser department stores, it now has “a near-monopoly in the UK” in selling top labels from Boss to Barbour, Stone Island to Replay, Moncler to Mulberry.

The situation affects womenswear and kidswear names but it is in the brand-driven menswear sector that most anxiety is being felt by rivals.

Since acquiring a mixed bag of 15 businesses from JD Group around Christmas in a deal worth £47.5m Frasers has lost no time in announcing the closure of admired indies that competed with Flannels.

In Liverpool, for example, it has closed or is in the process of closing branches of Tessuti, the premium menswear chain, Scotts, the related casual menswear business, and the Kids Cavern designer childrenswear business. It is also expected to close Cricket, the upmarket boutique known as a Wags’ favourite, once it can get out of its lease in the Metquarter.

Tessuti Liverpool ONE

Long-established and still mainly run by their founders, all were direct competitors to some degree with Flannels. Soon the only significant premium level retailer in Liverpool will be the huge flagship Flannels opened in a former Owen Owen department store building in June 2022.

Such domination of the designer fashion niche will be repeated nationwide as the speedy rationalisation of Flannels’ competitors is felt nationwide, critics maintain.

The mini-chain Choice in Essex and Kent, the designer store Giulio in Cambridge and Kingston upon Thames, the designer label specialist Base Childrenswear in south-east England, and the streetwear and denim retailer Xile in Scotland are to disappear in the near future.

In a few cases, it is understood, some units will be converted to the Flannels or Flannels Junior name.

“The sale by JD was a steal for Frasers,” said a menswear veteran with close contacts at both companies. “It was a typical Ashley deal. The £47.5m price included £40m of stock. Frasers never had any intention of continuing with any of these. By closing competitors, it has just bought significant market share for a knock-down price. You have to have some grudging admiration for how Frasers have played it, but JD has a lot to answer for by just handing over the upmarket fashion sector to Ashley.”

In a recent BBC interview, Michael Murray, the Frasers Group CEO since May 2022, admitted Ashley thinks the Flannels concept is “bonkers”.

"He can't understand why people would spend so much on luxury clothing,” said Murray. “But he understands that he doesn't understand, and he understands you have to be relevant to consumers."

Flannels’ 60 stores stretch from Plymouth to Glasgow, taking in relatively small places like Hull, Southport and Sunderland. The group’s declared intention is to reach 100 branches, which perplexes rivals as much as it scares them.

“The mark-up on the type of brands Flannels stocks is typically 2.5 or 2.8 and that just doesn’t make enough money to cover the running costs of the sort of big stores they have,” says a prominent fashion agent. “Even about 25 years ago the UK could handle only about 120 stores in total selling this level of merchandise, but that was before the internet took a huge part of the business away from physical shops and brands started selling directly to the consumer too. The UK market cannot sustain this level of activity. Aspirational fashion merits selective distribution, not mass distribution.”

"The UK market cannot sustain this level of activity. Aspirational fashion merits selective distribution, not mass distribution."

A well-regarded northern retailer explains the dangers to smaller rivals: “Flannels discounts early in the season so independents like us can’t compete. Last autumn I gave a British brand an order worth £500,000. By the time it was delivered to me in August Flannels was already discounting the same products by 30% to 40%. I had to cut my prices because customers price-match you online. I didn’t make a single penny on my £500,000. That’s why Flannels is so dangerous to smaller retailers and the brands themselves.”

“Having a Flannels in every major location and lots of secondary ones will lead to a clone town syndrome,” warns a veteran independent retailer. “Independent fashion stores bring variety and a different point of view to a town. They reflect the vision of the owner. They offer great personal service. They have long-standing, knowledgeable staff who really know the ins and outs of the products they sell. You don’t get any of that in a national chain that is bought centrally.”

Those sceptical of the Flannels approach claim its buyers are unadventurous, resulting in a relatively dull, risk-averse and repetitive selection in store and online, lacking the flair a good independent owner would favour.

“The seasonal collections from big brands are huge. Five independent buyers could go and buy five different selections,” observed one indie boss. “It seems Flannels buyers are only allowed to buy a narrow range, concentrating on black, grey, navy and white. It makes for a boring offer.”

“Flannels are trying to commoditise fashion, to treat creative fashion collections like they treat basic black T-shirts in Sports Direct,” added one supplier to the business. “It’s run by algorithms, not fashion sense.”

A further problem, the trade believes, is a huge amount of surplus stock that Frasers has built up. Industry gossip suggests £400m worth of garments at wholesale prices is clogging the system.

“Normally a retailer selling desirable brands would expect to sell 50% to 60% at full-price but Flannels only hits 20% with some lines in these little places it’s opened in,” claims an industry source. “No wonder they have so much stock.”

The shops bought from JD are being used to clear old stock during their Closing Down Sales. Additionally, online Frasers appears to offer most of the merchandise – certainly its discounted lines – across all its different websites. So, for example, premium menswear brand Hugo Boss can be found on the USC page on the Sports Direct website, although Hugo Boss is not sold in Sports Direct stores.

On the main Flannels website more than 3,000 items of Boss were listed recently in the Outlet section alone, another symptom of the group’s overbuying, say sceptics.

Trade sources claim Flannels’ buyers have been told to reduce the amount they order for spring-summer 2024 season.

Mike Ashley

Ashley, 58, made billions by taking control of the active sportswear sector and crushing indie sports shops in the 1990s through his Sports Direct chain. He still owns 64% of the listed Frasers Group. The official line is that Murray, 33, who is married to Ashley's eldest daughter Anna, is running the group, but most observers are convinced Ashley is very much in charge.

It has just been revealed Ashley, who resigned as a director last year, has become a “consultant” to the group, which will allow him the power but not the accountability of a director.

“Murray is good to have as the handsome young face doing the PR,” said one disenchanted fashion brand principal, “but Ashley pulls the strings. Ashley only knows one way to operate and that is to pile it high and sell it cheap. Flannels is just a Sports Direct with upmarket labels.”

Admirers of Ashley’s achievements, however, respond that he buys distressed companies no one else wants and trades them effectively, but without the “fluffiness” that characterises some elements in the fashion business.

“When those [independents] sold out to JD Group, it was because they were trading poorly or were even on the point of collapse.”

There has been widespread dismay in the independent sector that Tessuti, Scotts, Choice, Giulio, Cricket and Xile, most of which have been trading for 30 or 40 years, will soon disappear.

Less benevolent analysts, however, see this as survival of the biggest and the most ruthless.

Giulio Kingston upon Thames

“When those people sold out to JD Group, it was because they were trading poorly or were even on the point of collapse,” said a former JD insider. “They had a very easy time when (former JD chairman and CEO) Peter Cowgill was in charge because the fashion side was his personal project. Lots of other people in JD could not understand why he was being distracted by these piffling businesses that, with the exception of Tessuti and Scotts, rarely managed even £10m in sales.

A lot of people were very happy when (Cowgill’s replacement as CEO) Régis Schulz came in last year and got rid of them to Frasers to concentrate on what JD does best, which is trainers and sportswear.”

Independent fashion retailers fear Frasers Group will use its market position to lean on fashion brands to give it preferential rates and service or impose difficult trading conditions on smaller rivals, such as insisting on payment upfront.

While others feel some smaller retailers are being paranoic, they note Ashley has for many years bought his way into important suppliers such as the premium brand agency Four Marketing, which handles the terrace lads’ favourite Stone Island, and the German fashion house Hugo Boss.

This season classic Stone Island long-sleeved tops with its distinctive badge buttoned on the left sleeve, which retail for £255, were being discounted to £175 online and in Flannels and other fascias, a reduction for a fashion “golden goose” that would have been unheard of a few years ago.

“Ashley has killed Stone Island with his discounting. It’s as simple as that,” said one angry former stockist of the brand.

Trade rumour suggests Moncler, which owns Stone Island, will take distribution away from Four Marketing within two years, so perhaps Ashley is squeezing out as many sales as possible before then.

For years, the world’s two leading sportswear brands, Nike and Adidas, have chosen not to supply Sports Direct with any high-value and prestigious ranges, preferring instead to partner with JD Sports.

“Nike and Adi don’t trust Ashley to treat the merchandise correctly,” said a menswear veteran. “At this level of the market, everyone has to stick to the same rules, prices and discounts. Ashley just won’t do this, as fashion brands have now discovered to their cost.”

Another concern for brands, which work hard to build up a perception of their values, is the damage done to their image by being seen regularly discounted across the Frasers Group.

“No matter what the law says about restrictive practices, Frasers and Flannels are going to be the biggest customer for a lot of brands. It is going to be hard to stop dealing with them or giving them special treatment,” a concerned retailer insisted. “They squeeze even big brands for discounts so they can achieve a 3.0 margin at full price, meaning they still make decent money when they cut prices.”

After the JD deal, Frasers made it clear to some smaller brands they would not be supplying Flannels in the future by taking time to settle outstanding invoices from autumn-winter 2022 and to accept orders for spring-summer 2023.

Most brands were asked for a 20% discount by Frasers, but some were told the group wanted a 50% cut. “Small brands don’t have the financial resources to start legal proceedings against Frasers,” said one supplier who accepted the demand for 20% off. “JD would have been getting a 10% discount on our standard wholesale price anyway, so you have to take a view about if you want any chance of working with Frasers in the future. They are the biggest player. We will approach working with them with caution, but we just simply cannot rule it out.”

"I have to believe Flannels’ domination might actually stimulate a resurgence of smaller and more interesting retailers, stocking smaller and more interesting brands, to appear."

Those looking for a positive spin on the situation insist good independent fashion stores will always have a place in the UK retail scene, albeit a smaller one. Critics of Flannels’ concentration on expensive “luxury” items from a relatively small group of well-known brands question where its growth will come from.

“That JD deal has been a blow for indie fashion retailers in the UK,” said one of those affected, “but I have to believe Flannels’ domination might actually stimulate a resurgence of smaller and more interesting retailers, stocking smaller and more interesting brands, to appear.

“When Starbucks and Costa appeared everyone got excited about their take on selling coffee, but then they became boring and stimulated a lot of more creative artisan coffee shops to open.

“But given the current economic conditions, it’s going to be 18 months to two years before we will see a revival in independent fashion. Let’s see how many smaller fashion shops in a town with a Flannels are left standing by then.”