Mike Ashley is best known for selling cheap tracksuits in the UK. Now, he is thinking more like a bling king.
The billionaire behind Sports Direct, who bought out the fancy but failing department store chain House of Fraser in 2018, is elevating a scion to a senior role, just as it’s been done at LVMH Moet Hennessy Louis Vuitton SE and Prada SpA. Ashley’s company, now Frasers Group Plc, confirmed last week he was preparing to hand over his chief executive officer role to his future son-in-law, Michael Murray.
Ashley often ends up in exactly the right place in terms of business. But to get there he takes a circuitous route that flies in the face of best practices in corporate governance. Appointing his successor may well fall into this category. Murray is engaged to Ashley’s daughter Anna. He is not on the board, but began working with Frasers in 2016 as a consultant on property deals. Ashley could have avoided any shareholder hesitancy by taking the company private, as I’ve long argued he should have. He already holds a 64% stake in Frasers.
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But Ashley is used to controversy. His company, which runs Sports Direct as well the luxury boutique Flannels, was slammed by lawmakers five years ago over “Victorian” conditions in its Shirebook warehouse. A court case a year later brought by former employee Jeff Blue who alleged he missed out on lucrative bonuses, and which Ashley won, included testimony describing his drinking antics, including ending a night out vomiting in a fireplace. In a farcical episode, the company had to delay its annual results in 2019 after discovering a big tax bill, although it later said this wouldn’t be such a big problem after all.
At LVMH, four of founder Bernard Arnault’s children are involved in the world’s biggest luxury group. Meanwhile, at Prada, Lorenzo Bertelli, the 33-year old son of Miuccia Prada and co-CEO Patrizio Bertelli, began working at the house three years ago, and recently joined the board. No succession plans are in place yet, but the founders’ children are clearly in pole position—although whoever gets the job must be well qualified. There is an argument for populating the top ranks of the big luxury groups with kids of the bling generation, although the question remains as to whether they need to be related to the controlling shareholder.
Consumers under the age of 45 are expected to account for about two-thirds of the global luxury goods market by 2025, according to Bain & Co. So why not have senior executives of the target generation? Frasers sells the likes of Moncler puffer jackets, Gucci handbags and Off White sneakers. Murray, 31, and just-as-youthful fiancee Anna Ashley, lead the sorts of lives that Flannels customers do, or at least aspire to.
While the succession smacks of nepotism, Murray isn’t unqualified for the job. In 2018, his role was broadened to include turning Sports Direct — known for its pile-them-high, sell-them-cheap strategy — into the “Selfridges of Sport.” He has helped to upgrade its stores, including the Oxford Street flagship, which opened in June. He has smoothed often fractious relationships with the big sportswear brands Nike Inc. and Adidas AG. He has also driven the expansion of Flannels, which is part of Frasers’ premium lifestyle division, the only corporate arm to lift revenue in the year to April 25.
The appointment of relatives to key roles in publicly-held retailers isn’t unheard of. Simon Wolfson, CEO of Britain’s most successful retailer, Next Plc, is the son of David Wolfson, who had previously been chairman of the company. The Wolfson family had a long retail pedigree through its involvement in Great Universal Stores.
Since it isn’t proposed to start till May, Frasers can still make Murray’s succession more palatable to stockholders who might object to the move. There is time to run a proper recruitment process with Murray added to a list of external candidates. At the very least, he should be benchmarked against outsiders.
Then there is pay. Murray received almost 10 million pounds through his consultancy company MM Prop Consultancy Ltd. in 2019 and 2020. That compares to Ashley, who does not take a salary. If he does become CEO, Murray’s remuneration should be more like that of any external appointment, reflecting the fact that he is doing a job for all shareholders. He should be paid accordingly, and be accountable to them. That may help the company to avoid a public quarrel with minority investors.
There will be big challenges. Frasers must keep Sports Direct, its cash cow, firing on all cylinders, even as people getting back to the office and socializing again have less time to work out. It must also make a go of what remains of the House of Fraser chain. Finally, it has big ambitions for Flannels, aiming to lift its sales to 2 billion pounds by 2026. The whole of the premium lifestyle division generated sales of 736 million pounds in the year to 25 April.
Finally, apart from investors, Murray will have someone else watching over his shoulders. Ashley will remain an executive director. His majority shareholding ensures he stays in the driver’s seat. Board rooms are one thing. In-laws, another.