Paul Tyrer in the Retail Gazette. Can Frasers Group save DW Sports?

Year Published: 2020

David Whelan’s retail and fitness business DW Sports collapsed into administration this month and was bought by hungry high street acquisition king Mike Ashley. How will the Frasers Group boss turn the ailing company around? Retail Gazette talks to experts.

On Monday, DW Sports joined the likes of Jack Wills, Evans Cycles, Sofa.com, Game and House of Fraser in Mike Ashley’s recent spate of retail acquisitions.

Less than two weeks after Frasers Group – of which Ashley is the majority owner – initially placed a bid on DW Sports, it acquired certain assets from its competitor for £37 million. Administrators from BDO said 43 of DW Sports’ 73 gyms and 31 of its 50 shops had been transferred to the Frasers Group retail empire.

BDO added that the deal safeguarded 922 jobs out of the 1700 that DW Sports had before administration, and the remainder of DW Sports’ retail estate has been closed but some may be reopened by Frasers Group in due course.

DW Sports was owned by former Wigan Athletic owner Dave Whelan, a long-time rival of Ashley’s, dating back to their days owning competing football teams.

Ashley and Whelan have locked horns several times since 2000, going back to when Whelan was running his JJB Sports business. He sold out of JJB Sports in 2007, only to set up DW Sports two years later, which he used to re-acquire and rebrand 52 fitness clubs and their attached stores from his troubled former business.

Earlier this week, Ashley saw off competition from the Whelan family itself, which had eyed another rescue of DW Sports, as well as interest from JD Sports, to clinch the acquisition.

However, Ashley has not acquired the DW Sports name. The gyms acquired will be re-branded under the Everlast Fitness Club brand already owned by Frasers Group. Ashley’s retail empire said the deal “complements” its existing gym and fitness club portfolio.

DW Sports has no doubt become another victim of the financial impact of Covid-19.

After being forced to temporarily close down both its retail store portfolio and gym chain for a protracted period due to the pandemic, it was left with a high fixed-cost base and zero income – while its membership subscriptions were put on hold.

The firm also relied on gym membership subscribers to drive revenue from its clothing and apparel stores. Members were provided incentives such as exclusive discounts to purchase the clothing, trainers or equipment they needed for their activities.

Retail experts told Retail Gazette that it appears Ashley was “cherry-picking” the best parts of a business from the administrator for a relative bargain basement price, especially when DW Sports’ Companies House accounts showed it had assets worth £194 million but ran up a loss of £20 million.

Ashley began his acquiring spree in the late 1990s. He bought Donnay in 1996 and then Lillywhites in 2002, which were easy pickings given they were facing financial difficulties at the time. His takeovers perhaps came to climax in the last two years or so, having taken over the likes of House of Fraser, Evans Cycles, Jack Wills, Sofa.com and Game while also attempting – but failing – to acquire the likes of Debenhams and HMV. And just this year alone, Ashley snapped up stakes in upmarket retailers Mulberry and Hugo Boss.

Last week, Frasers Group suggested it would acquire property for high-end shops in shopping centres following a host of collapses, and would invest £100 million on online expansion.

There have been speculations as to whether Frasers Group could help transform DW Sports considering Ashley’s past acquisitions have not gone to plan.

House of Fraser collapsed in August 2018 and was bought shortly after by Ashley for £90 million through a pre-pack administration amid ambitions to transform the department store chain into the “Harrods of the high street”.

In its full year report last year though, Frasers Group labelled House of Fraser’s problems as “nothing short of terminal in nature”.

Moreover, confused and frustrated customers took to Twitter to express their concerns about House of Frasers’ growing similarity to Sports Direct.

Paul Tyrer, partner at SAS Daniels Solicitors, told Retail Gazette that the retail sector can expect to witness Frasers Group streamlining DW Sports and the wider business further, with a significant number of employees “jettisoned” post-completion.

“Buying a gym business at a time when the public appears unwilling to return indoors in any number could be seen as a risky strategy,” Tyrer explained.

“[Ashley] will have his work cut out to align and integrate this latest acquisition into the existing portfolio of Fraser Group brands.

“DW Sports has a particular affection among customers in certain parts of the north. What we saw following the similar acquisition by Frasers Group of Evans Cycles in 2018 was that client base quickly evaporate once levels of customer satisfaction were perceived to decline.

“It will be important for Mike Ashley to win the hearts and minds of customers in a sector that depends on continued membership and standards of service.”

Catherine Erdly, founder of business consultancy firm Future Retail, argued that Ashley’s main goal is to just rebrand the retail outlets of DW Sports into Sports Direct.

“It doesn’t look like the plan is really to transform DW Sports, it’s more about Frasers Group acquiring the brand at a knockdown price,” she said.

According to Erdly, Ashley is likely to “take the profitable areas and leave the rest”. She said that while it seemed like an asset-stripping exercise, it didn’t seem like Ashley was buying DW Sports for anything other extra Sports Direct shops while potentially keeping some of the more profitable leisure club locations.

Michael Jones, co-founder of lighting retailer Houseof, agreed with Erdly. He suggested that Ashley has “limited desire” to turn the DW Sports business around and that his focus would be on leveraging the scale of the Sports Direct transition.

“This includes the staff, stores and supply chain, and it’s likely he will then chop out the ‘unique’ elements, in essence stripping DW Sports of everything that made it DW and turning into another Sports Direct before the end of the year,” he said.

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