Mike Ashley’s Sports Direct has agreed to buy the House of Fraser department store chain for GBP 90 million.
The deal was announced just hours after the 169-year-old chain went into administration when talks with its creditors failed to reach an agreement. Mr Ashley said his plan was to turn the 59-store chain in to the “Harrods of the High Street”.
It employs 16000, 5900 directly and 10100 in concessions. Administrators said jobs could be “preserved”. While some stores did not open on time on Friday, August 10, initial problems with the website were resolved. There were reports, though, that gift cards were not being accepted.
Sports Direct said in a statement: “The group has acquired all of the UK stores of House of Fraser, the House of Fraser brand and all of the stock in the business.”
Sports Direct already held an 11 % stake in the department store chain, which had been intending to close 31 shops under a now-abandoned restructuring plan.
House of Fraser’s administrators, from accountants EY Ernest & Young, said the department store chain had been in “a race against time to secure sufficient funding to secure its future” ever since the Chinese firm C.banner pulled out of a rescue deal earlier this month.
What does this mean for jobs?
Before Friday’s deal was announced, 6000 roles were to have been lost.
Alan Hudson, one of the four administrators from accountants EY, said the Sports Direct deal “preserves as many of the jobs of House of Fraser’s employees as possible”.
“We hope that this [deal] will give the business the stable financial platform that it requires to flourish in the current retail environment”.
But union officials at Unite said staff were entering “a period of great uncertainty and worry”.
Unite regional officer Scott Lennon said: “Sports Direct is a leopard that has not changed its spots and we hope that its poor record on pay and employment practices are not transferred to the House of Fraser.”
Who is Mike Ashley?
Mr Ashley founded the 750-strong sports fashion chain Sports Direct in 1982. Among the brands it owns are Slazenger, Karrimor, and the sports retailer Lillywhites. It has also encountered controversy. A report by the Business, Innovation and Skills committee in 2016 concluded that the company did not treat its workers like humans, but Sports Direct said its policy was to treat all people with respect.
He has a varied portfolio of investments, including in department store Debenhams and the retailer French Connection. In addition, he owns the lingerie chain Agent Provocateur, as well as the clothing chain Flannels, which sells brands such as Burberry London, Fendi and Sophia Webster.
Mr Ashley is also the owner of Newcastle United, although he attempted to sell the football club earlier this year.
What went wrong?
Chinese firm C.banner had been poised to invest in the store after it agreed a Company Voluntary Arrangement (CVA) with its creditors. This would have closed 31 stores and put 6,000 jobs at risk. But it could not raise the financing, leaving House of Fraser seeking new investment.
On Thursday, August 9, House of Fraser had indicated time was running out when it said it wanted to secure financing by 20 August. This was the date when concessions in the stores were scheduled to be paid.
As well as problems with its owners, the chain had too many stores, was slow to develop its internet shopping capability and failed to entice enough shoppers.
What does it mean for stores and shoppers?
More may stay open. Mr Ashley said: “We will do our best to keep as many stores open as possible.”
“My ambition is to transform House of Fraser into Harrods of the High Street,” he said, indicating a move upmarket.
“This is a massive step forward and further enhances our strategy of elevation across the group. This will benefit both House of Fraser and Flannels in the luxury sector,” he added.
There had been speculation he might take the opportunity to expand the Sports Direct chain, which he has previously said he wants to transform into “the Selfridges of sport”.
Analysts said he would need to spend more money. Sofie Willmott, senior retail analyst at GlobalData, said: “To give House of Fraser the best chance of survival, Sports Direct and its owner Mike Ashley must make drastic changes to both its product proposition and store environment to entice shoppers back.”
Kate Hardcastle, from the retail consultancy Insight with Passion, told the BBC a move downmarket was more likely.
“This is a big move and I’m sure lots of people will be breathing a slight sigh of relief that the name House of Fraser isn’t disappearing from the High Street altogether,” she said.
“However, I can’t imagine that the business or indeed its offer are going to be similar to that people know or recognise as House of Fraser – this is someone who deals very much in the discount market.”
What does it mean for suppliers?
House of Fraser has two main types of relationships with its suppliers: wholesalers, who get paid whether or not their stock is sold, or concession holders, who are paid after their items are sold.
Nigel Lugg, group executive chairman of Prominent Europe, which supplies Chester Barrie menswear to House of Fraser, said it was “good news” that the business had been saved.
But, he said, suppliers would have hoped the business would avoid administration, so they could be paid in full. “I can’t see the suppliers getting a lot of money out of the system,” Mr Lugg told the BBC, adding suppliers often received 2p to 3p in the pound in cases of administration. His business would be fine but, he said, “it could impact into other UK suppliers.There is a lot of money trapped in the system,” Mr Lugg said.
Mr Ashley referred to some suppliers when he announced the deal. He said: “It is vital that we restore the right level of ongoing relationships with the luxury brands.”