As with most corporate deals, there are potentially positives and negatives to this week’s sale of House of Fraser to Chinese department store chain, Nanjing Cenbest, for £480m.
Holding firmly onto his 11 per cent stake, Sports Direct founder Mike Ashley clearly believes there will be more of the former than the latter.
If he’s anything, Ashley is a shrewd businessman and one who is often right about the way the wind is blowing in retail - so his position shouldn’t be taken lightly. If he’s excited, perhaps we should all be.
I expect him to hang onto his stake for as long as possible to get a decent return. I suspect he can see dollar signs and it won’t surprise anyone if they come through.
More generally, the acquisition is certainly a symbolic moment within global retail, and underlines very clearly the growing influence of China.
As far as I’m aware this is the biggest ever acquisition by a Chinese-listed company of an overseas retailer. From that perspective alone, it’s big news.
And not only does it reinforce the strength of demand in the Chinese market for UK heritage brands, of which House of Fraser is certainly a well recognised one, it also opens the door for Chinese brands to enter the UK. It works both ways, after all.
Yuan Yafei, chairman of Sanpower Group, which is the largest shareholder of Nanjing Cenbest, said exactly this – that the deal would act as a bridge between China and Europe – in his official statement on the deal:
“We are looking forward to bringing international brands to China through House of Fraser, providing Chinese consumers with premium fashion products. We are extremely confident House of Fraser will become a leading global department store and will serve as a bridge for premium brands between China and Europe.”
Clearly, this acquisition will see House of Fraser achieve a strong international reach — way beyond what it might have achieved through other means. And it will happen far quicker, too.
There is an especially strong opportunity for the retailer within China itself, which arguably has the highest growth potential of any major market. The Chinese economy still has a huge amount of untapped potential.
It's good news for the brands operating within House of Fraser, too, as they will be hanging onto its coat tails and be exposed to the same international reach. Nobody will be complaining there.
There's also the small fact that this will considerably bolster the financial strength of House of Fraser, which should serve it well. Its firepower has just been dramatically increased and that positions it well.
But is it really as rosy as all this? It is probably slightly premature to suggest this, but I will anyway: could this deal spell the beginning of the end for the House of Fraser brand within the UK?
Or to put it another way, will the new international focus impact, or weaken, the core UK market?
House of Fraser could do worse than learn the lesson that Tesco did through its failed US venture: looking abroad can often cause you to lose focus and market share at home. This has cost Tesco dearly and House of Fraser needs to tread carefully.
And will they be able to maintain the brand DNA if they are pushing it internationally? This can be harder than it seems. An international brand can dilute in its home market, if not intentionally.
The truth is that we won’t really know for some time yet. What’s certain is that the senior management team will learn a lot during the transition period in the months ahead.
We'd expect there to be some departures — some people will flourish and seek international promotion under the new ownership while others will fall by the wayside.
In a deal of this size, there is always a degree of corporate fallout and this will be integral to how things pan out.
Often, what happens on the ground – the bottom-up factors - can affect a deal as much as any top-down, or strategic factors. It’s the small things that can have the biggest effects.
But the reality of this deal is that, for UK consumers, there are unlikely to be any major changes in the two years.
House of Fraser is an oil tanker of a retail institution and things do not happen overnight.
James McGregor is a director at retail consultants Retail Remedy.