Acquisition by Sanpower helps House of Fraser to revive at home and take its British-style retail to China

In 2014, China's Sanpower Group made history with its acquisition of the British department store House of Fraser, inking the biggest international retail acquisition deal by a Chinese company.

Three years later, the deal has realized noticeable synergies. Sanpower has opened a House of Fraser store in Nanjing, re-creating the House of Fraser store experience for Chinese consumers. Meanwhile, its investment in the UK company has led to House of Fraser's massive renovation, improving the experience for British consumers as well.

"The acquisition made great sense strategically," says House of Fraser chairman Frank Slevin, sitting in his spacious Central London office, not far from House of Fraser's flagship store in Oxford Circus.

"House of Fraser, historically, had many challenges, including lack of adequate investment to maintain its premium branding, to invest in its aging store portfolio and to adapt to changing customer needs. The acquisition allowed Sanpower to provide much-needed financial support and ownership stability for House of Fraser," says Slevin.

Founded in Glasgow, Scotland, in 1849, House of Fraser quickly grew in the 20th century, and after World War II, it was transformed into a national chain by extensively acquiring smaller stores. Between 1936 and 1985, it acquired more than 70 companies. In 1948, the company was listed on the London Stock Exchange.

However, in the 21st century, the company's financial situation began to suffer as it experienced a few changes of hands, and by the time House of Fraser was sold to Sanpower in 2014, it was already suffering from lack of investment.

The timing was perfect, since House of Fraser's search for an investor coincided with Sanpower's hunt for an overseas acquisitions target to gather brand reputation and retail expertise.

Sanpower Group was founded in 1993, and over the years has grown into a conglomerate spanning across consumer market, healthcare and finance. In 2016, it appeared on the list of China's Top 500 Enterprises for the 13th consecutive year and ranked 19th in China's Top 500 Private Enterprises. Its total assets in 2016 exceeded 120 billion yuan ($18 billion; 15.2 billion euros; ￡14 billion) and its annual gross sales amounted to 130 billion yuan.

In Slevin's view, what Sanpower bought with the acquisition was not just a brand, but expertise on retail store management that could readily be used in China's cultural context. In other words, bringing a quintessential British shopping experience to Nanjing.

Bringing House of Fraser's own branded products to China was a part of this experience, but more important, Slevin's team has helped Sanpower to create the same customer service. He says the way House of Fraser Nanjing is structured is very different from the traditional shopping mall model in China.

Traditionally, shopping mall owners in China act more as landlords, renting out space to different brands, so the experience that shoppers gain from going to the shopping mall is the same as going in and out of individual stores in the high street. The shop assistants within each space work for their specific brands and try to sell products from their brands.

"But House of Fraser Nanjing follows the same model as House of Fraser in the UK, which has open space, and it is much easier for customers to take items from different brands and match them. The experience is much closer to the actual experience of how customers mix and match items in their wardrobe," Slevin says.

At House of Fraser, both in the UK and Nanjing, the shop assistants do not work for individual brands, so their role is to help customers make good decisions.

"To achieve this retail experience (and) layout and make profits, we have a business model that mixes concession items, bought items and our own branded products," he says.

Despite efforts to replicate House of Fraser's British success, Slevin says, the Nanjing store has also paid extensive attention to accommodating Chinese customers' needs, taking into consideration factors such as weather differences and local product and brand mix.

Meanwhile, House of Fraser has undergone significant changes in its home market. Fresh investment from Sanpower has helped it to complete a number of store refurbishments, upgrade its logistics, supply chain, IT and sourcing, and relaunch an improved website.

The refurbishment has given House of Fraser's stores a cleaner, fresher look, helping customers to enjoy a more premium shopping experience. House of Fraser also reduced its number of in-house brands, which has given the remaining brands an opportunity to sell a wider range of items and enhance their individual identity.

Recent investment in IT systems also means a better online shopping experience for customers.

"There has probably been more investment in the business in the two years since Sanpower acquired House of Fraser than in the five years before the acquisition," says Slevin.

"So far, all of the revenue we have generated from House of Fraser post-acquisition has been re-invested into House of Fraser, instead of being returned to Sanpower, because Sanpower wants to see our business grow.

"Sanpower has been very understanding and visionary in its approach, leaving much of the daily management decisions to our team on the ground. We have a very good relationship built on trust and shared vision," says Slevin.

The synergies Sanpower and House of Fraser achieved are praised by Ding Yuan, vice-president at the China Europe International Business School in Shanghai, who also is a professor of accounting.

Ding says Sanpower is "one of the few remarkable cases where a Chinese company has brought a famous brand to China to provide a genuine shopping experience for Chinese consumers, along with its foreign expertise".

"Sanpower's long-term 'light touch' approach to this investment retains House of Fraser's UK management team and provides financing for upgrading its UK operations. It is also sharing its deep knowledge of the Chinese market which enables House of Fraser to tackle this market, providing a growth platform for the brand," he says.

He further highlights the strategy that House of Fraser is implementing in bringing the UK department store's mixed-brand approach to China's domestic market, which is still largely dominated by the model of landlords renting out space.

"Thus by bringing its expertise to China, House of Fraser can help Sanpower re-engineer the Chinese department store business model," says Ding.

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(China Daily European Weekly 09/01/2017 page30)