Why Frasers’ buy now, pay later push makes perfect sense

"On the face of it, Frasers entering a payments and logistics partnership with THG might not seem exciting, but this could be strategically important for Mike Ashley's empire," says Dan Coatsworth, investment analyst at AJ Bell.

"Frasers has already shown it is good at selling products to consumers, now it wants to be a bigger player in the payments game. Having THG as a partner gives it a shop window to show off its skills and potentially encourage more shopkeepers to sign up.

"Frasers is hoping third party retailers will use its buy now, pay later product as that would provide an additional income stream. The proposition is already live with Frasers' own retail brands and signing up THG is a big step forward as it represents its first external partner.

"A lot of people have wondered why Frasers has taken equity stakes in third party retailers in recent years but not made takeover offers. Swapping ideas on best practice, seeking ways to increase distribution of Frasers' products, and Mike Ashley simply having an eye for a bargain and hoping to make a few quid as investment were among the suggestions. Now we might have another reason.

"Frasers owns stakes in a number of retailers including AO, Boohoo, ASOS, Hugo Boss, Currys and Mulberry. As a major shareholder, it should be able to command an audience with the people running these businesses, and that provides an opportunity to try and sell them its buy now, pay later proposition.

"Rival retailer Next made £163 million profit from its credit offering over the past financial year, demonstrating the value of doing more than simply putting products on shelves and getting them into consumers' homes. That's a decent contribution to its group profit and certainly something that will have caught Frasers' eye.

"While it's unusual for a retailer to offer financing to rivals, Frasers clearly sees an opportunity given how consumers are increasingly using buy now, pay later as a purchasing channel. It means Frasers could still clean up even if people are not buying its physical products.

"It's not going to be an easy battle to win as the marketplace is highly competitive. Third party providers like Klarna and PayPal are already established partners for retailers around the world with their buy now, pay later schemes, and they are names which the general public now associate as default payment methods. However, Frasers might still have a chance to muscle in on the market, particularly as its service to retailers is free unlike some of the big-name rivals.

"Customers have three months to pay back the money without being charged interest, but those who don't clear the full balance during this period subsequently pay 29.9% annual interest which is where Frasers makes money.

"Frasers has come a long way from its days as a pile 'em high, sell 'em cheap sportswear retailer. A subsequent move into luxury products, sofas, gaming, gyms and cycling illustrate how a focused, ambitious company can spread its wings and become a bigger beast. Financing is a natural evolution and it will certainly not be the last initiative to bring in more money for the group."