It’s a consumer discretionary sub-segment with low barriers to entry. Pricing power is limited as brand strength, outside of a few notable exceptions, appears weak. Competition is rife both offline and increasingly online where margins are continuously undermined by product returns. Intellectual property protections help the few quality brands versus the masses and, some firms do appear to gain some scale advantage, though I see this scale advantage fading over time.
With significant energy price rises contributing to an obvious consumer income squeeze it might seem sensible to avoid mainstream clothing fashion businesses altogether. But, I think there are few diamonds in the rough. In this context, Frasers Group, the renamed SportsDirect.com outfit, maybe controversial. Whilst politicians may dislike Mike Ashley, I think he’s an incredibly astute entrepreneur who propelled Sports Direct with well-placed physical locations and advanced logistics capabilities. Mike no longer heads-up Frasers. Instead, Michael Murray succeeded as CEO, venturing on a new strategic direction: brand elevation. Time will tell if the strategy has diamond potential.
