Back to all resources

Spotlight: House of Fraser Strategy Considerations

Sophie Walton gives her view on how the acquisition of House of Fraser impacted their strategic considerations... 🛍️

  • Sophie Walton
  • 3 min read

Established in 1849, House of Fraser is a department store operating in 150 nations worldwide, selling homeware, branded clothing and beauty products. Once a household name with a large presence on the high street, HoF have suffered devastating losses over the past few years.

Subsequently, the business was acquired by Mike Ashley of Sports Direct for £90m; saving them from total collapse in 2018. Whilst Ashley may be able to reduce HoF’s £1bn debts and keep the retailer on the British high street, there's a risk that HoF’s premium brand image will be tarnished.

In this article we'll analyse the successes and shortcomings of HoF in the context of the acquisition, and assess areas in which improvements can be made.

PESTLE for House of Fraser

There are a multitude of external factors impacting HoF’s future. The retail industry is already vulnerable, with costs soaring and demand dwindling. Consequently, HoF’s future will be threatened should they fail to recognise the importance of these factors and not learn from their previous failings.

Therefore, HoF should play close attention to the economic, social and technological drivers in the external environment:

  • Brexit is creating political and economic uncertainty, having an unpredictable effect on the pound. Such instability is damaging consumer confidence, resulting in a reluctance to spend.
  • The face of the high street continues to evolve, and shops as we know them are changing. The future points to customer experience focus and transaction-less brand experiences, assisted by technology.
  • Thunberg’s sustainability movement has increased pressure on corporations’ social responsibility policies and has contributed to the 9.2% increase in the second-hand market in 2018.
  • Online retailer is thriving. If physical retailers fail to adapt, new entrants will gain market share.

Factors that will impact HoF include:

Political

  • Brexit
  • Trade deals altering import and export tariffs
  • Strength of pound

Economic

  • The economy is volatile during this transition period
  • Damaged consumer confidence

Social

  • High street visits in decline
  • More consumers choosing online shopping
  • Consumers seek brand experiences
  • Rise in non-transactional shops
  • Second-hand market growing due to environmental factors

Technology

  • Online sales growth
  • AI and personalised experiences altering shopping expectations
  • Augmented Reality options around fashion being developed

Legal

  • Employment law
  • Consumer goods laws

Environmental

  • Drive to reduce carbon footprint and use of plastics
  • Consumers more aware of the impact brands have
  • Taxes and policies to promote green companies

Complete your own PESTLE here.

Five Forces for House of Fraser

Looking at Porter’s 5 Forces, HoF are under threat from almost all angles. Industry rivalry, threats from newcomers, suppliers and customers are all high-risk factors. The threat from substitutes is a medium-sized threat, as the second-hand market is an emerging trend. HoF should be aware that:

  • The industry is extremely saturated with over 37,000 ‘non-specialised’ stores in the United Kingdom. HoF’s market share is 17.2% lower than the market leader, thus highlighting the need to differentiate.
  • Some supplier relationships were irreparably damaged during the acquisition, resulting in insecurity of supply and reduced supply. This poses a significant threat to HoF as they depend entirely on suppliers since Ashley axed HoF’s own range.
  • Customer loyalty sits 29% lower than the leader, Marks & Spencer, in 2019. Like suppliers, these relationships were damaged during the acquisition, meaning brand perception and equity have been damaged.

Industry rivalry: High

  • 37,500 ‘non-specialised’ stores in the UK
  • Exit barriers and fixed costs are high
  • Market share is low. John Lewis hold 25% of market share, whilst HoF hold 7.8%

Threat from new entry: High

  • Product differentiation is low as department stores often use the same suppliers
  • Barriers to entry is low when done via online platforms

Threat from substitutes: Medium

  • The second-hand market is growing via companies such as eBay
  • Selfridges formed an alliance with Depop (a substitute brand), showing that second-hand is becoming mainstream

Threat from suppliers: Medium

  • Some supplier relationships have been irreparably damaged during the acquisition
  • Suppliers can pull products from HoF or demand higher margins

Threat from customers: High

  • Customer loyalty is low
  • Customer experience is a major differentiator
  • Customers may shop elsewhere out of principle
  • Ashley overturned the fur ban, angering consumers

Complete your own Five Forces here.

SWOT for House of Fraser

Strengths

  • HoF’s brand and history increase awareness and trust
  • Strategic alliances with Café Nero provide a competitive advantage
  • Wide distribution increases competitiveness
  • Loyalty scheme popular

Weaknesses

  • Customer relationships have been damaged, weakening loyalty
  • Supplier relationships have been irreparably damaged, reducing stock
  • Lack of financial resources hinders HoF’s ability to maintain market trends
  • Online presence in search
  • Price point seen as expensive
  • Margins

Opportunities

  • Customers seek in-store experiences, providing a differentiation opportunity
  • Consumers want corporations to be socially responsible, enabling the development of a CSR programme
  • HoF can strengthen their position by adopting a multichannel strategy
  • Online focus and e-commerce

Threats

  • Damaged consumer confidence because of Brexit means a reduction in expenditure
  • Online retailers are thriving, threatening HoF’s market share
  • Industry rivalry is intense, meaning HoF’s future is uncertain
  • Economic conditions result in less spending on luxury items

Complete your own SWOT here.

Summary

The acquisition of House of Fraser has resulted in many new opportunities and challenges for the group. It'll be interesting to see how their brand develops under this new direction...

More resources you might like

Loading...