FTSE 100 retail group Frasers (FRAS) is in talks to sell Missguided to China’s Shein, according to reports. Such a move could have significant implications for the UK retail industry.

It could see the Chinese group become a much bigger player in this country and potentially kick-start a new wave of takeovers in the sector as companies join forces to fight off the heightened competition.

Shein was founded in October 2008 in China by entrepreneur Chris Xu. The company is thought to be worth $66 billion, and according to analysts at Shore Capital has been ‘on an aggressive M&A trajectory, aiming to augment its global footprint and diversify its revenue streams.’

It has grown rapidly and has become a fierce competitor to the likes of Boohoo (BOO:AIM) and ASOS (ASC), selling clothes very cheaply and shipping them to the UK from China.

Frasers bought Missguided out of administration in June 2022 for £20 million. Selling the business to Shein may not be a simple asset disposal. Analysts speculate the deal could form more of a partnership, with Frasers’ stores potentially acting as a place where Shein customers can return goods. Frasers might also be able to sell its products on Shein’s platform.

Shein has already forged such a partnership with US low-cost fashion retailer Forever 21. The latter is set to use its American stores to sell Shein merchandise and handle returns, while also listing its products on Shein’s platform. Forever 21’s parent company Sparc last month said it would become a minority shareholder in Shein. In turn, the Chinese group is taking a one-third stake in Sparc.

‘A potential partnership with global online retail player Shein could represent a transformational milestone for Frasers, which is already undergoing a significant strategic elevation and implementation of its credit offerings,’ say analysts at Shore Capital.

The fast fashion market is very lucrative, estimated to be worth $123 billion in 2023 and set to grow to nearly $185 billion by 2027. However, it is also very competitive, which means the leading players might want to consolidate to have economies of scale.

‘The (Frasers/Shine) transaction could position Boohoo and ASOS as potential M&A targets, as competitors may explore similar strategic partnerships or acquisitions. This scenario becomes particularly plausible if Shein deploys its considerable financial and operational resources to rejuvenate and scale the Missguided brand,’ says Eleonora Dani at Shore Capital. Frasers currently owns 10.4% of Boohoo and 10.6% of ASOS.

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