Last week it was revealed that House of Fraser’s entire management team had been laid off by its new owners Sports Direct.
Many have criticised Mike Ashley for his seemingly brazen dismissal of House of Fraser’s staff, which is understood to have included chief executive Alex Williamson, chief product and trading officer David Walker-Smith, chief marketing officer Paddy Earnshaw and chief financial officer Colin Elliot.
However, many others have pointed out that those who have been let go oversaw the downfall of one of the country’s most prominent retailers and were unable to prevent its collapse.
One of the management teams’ strongest critics is Ehab Shouly, who has run high-end restaurants and tea rooms under the brand Tea Terrace as concessions in House of Fraser for nearly a decade.
This week Shouly threatened legal action against the company’s administrator Ernst & Young (EY) over their handling of the administration, which he argues has left him £300,000 out of pocket.
The Retail Gazette spoke to the House of Fraser insider to establish why he supports both Ashley’s sweeping dismissal and his calls for a formal investigation into the reasons behind the department store’s administration.
“We completely welcome and support Sports Direct’s decision to dismiss the entire management team as we believe it mismanaged the company and also misled its concession and brand partners and suppliers,” Shouly said.
“The reality is that the senior management team has been so far detached from reality for at least the last three years.”
According to Shouly, the directorship had little grasp of the realities of the market and routinely ignored advice from their brand partners who dealt with customers on a day-to-day basis.
House of Fraser’s “Blackout” sale campaign was, according to Shouly, a prime example. Launched in the final days of the retailer after its troubles had been widely publicised, the sale appeared to both its customers and its partners to be poorly thought out.
“The Blackout campaign was launched at the time that HoF was going through a CVA,” he continued.
“We strongly advised them that the campaign was amateurish and was horribly named considering the precarious situation of the company. Their response was “that the campaign will cause a seismic shift and shock the competition.
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“There was no understanding of marketing. Week after week we would see the sales results. Their sales were down compared to the previous year, while our sales were up. Why? We were running creative and effective advertising and PR campaigns, and they were not. All they did was offer discounts.
“This resulted in their customer base simply waiting for the next big sale or Brand Event to happen. The customers would mostly buy when the products were on sale. This resulted in huge losses for the company.”
This focus on sales was said to often be forced on the store’s many concessions, to both the department store’s and its partners’ detriment.
“The HoF management team pursued sales at any cost, even if it meant zero profit or even a loss. They didn’t understand the fundamentals of business. Their only concern was to show an increase in sales.
“They pushed all their 85 restaurant concession partners to offer free meals and free drinks to customers, or 50 per cent discounts. This meant that HoF was making sales but the restaurants were not making any money.
“We refused and pushed back as our restaurants were always doing well and we didn’t need to discount and cheapen our brand. Others just did what they were asked.”
Other than being poorly judged in terms of tone, the brand’s marketing efforts were also reportedly aimed at a narrow audience which were already shopping at House of Fraser, failing to reach out to the new customers it sorely needed.
“While we were telling HoF that they need to start focusing on attracting a new segment of shoppers, they spent hundreds of thousands of pounds on research to tell them who their customers are,” Shouly continued.
“They found that their customer base is of a specific demographic, whom they decided to name Joe. They decided that all their marketing activities would have one objective and one objective only: to cater to the Joe demographic! Obviously, this was a complete failure.”
Sports Direct has been widely criticised for its decision to renege on its promise to “cancel and refund all orders that have not already been sent” days after it bought the retailer out of administration, leaving swathes of customers out of pocket.
Shouly argues that the blame in fact lies with the previous owners, who accepted the orders despite being fully aware of the company’s imminent fate.
“The HoF directors and management continued to take online payments from customers buying from HoF online in spite of their knowledge that the company was about to collapse,” he said.
“This is not a forgivable thing and they should be held accountable. A lot of people lost a lot of money because of that. It is no fault of Sports Direct.
“We did not choose to lend money to HoF nor did the customers who bought goods from HoF online. We did not choose to become creditors. The banks, on the other hand, chose to become creditors and lent the money to a company that has been in decline for many years without doing their due diligence.
“That’s why we have always supported Mike Ashley’s call for an investigation into the collapse of the company and its mismanagement by its board. The government has the authority to change the situation of the creditors of HoF and it should do the right thing.”
Despite Shouly’s clear frustrations with his former partners at House of Fraser, he believes that “Sports Direct’s management team is a far cry from the amateurs running the collapsed House of Fraser,” and is optimistic about both the future of concession owners and the department store as a whole under its new management.
“They will make a success out of HoF, and asked us and all their brand partners to work with them towards the same goal,” he added.
“It was the first time in nine years that we felt like brand partners for HoF. Mike Ashley and his top team have been working tirelessly from the first day that they bought HoF, they have been working to stabilise the business. Without those huge efforts and the strategic thinking behind them, the business would have collapsed.”
This positive future is not simply optimistic speculation, according to Shouly the benefits of this new team have already begun to materialise, including rescuing House of Fraser’s Oxford Street flagship from closure.
“We have seen the excellent progress Sports Direct has made since they bought HoF out of administration,” Shouly commented.
“They have been reversing all the bad decisions taken by the useless HoF senior management team. They have saved stores from being closed, including the flagship Oxford Street store.
“We even offered to help (the former team) rescue the Oxford Street store with a strategic plan, but they simply ignored our proposal. Again they thought they knew best.”
Beyond saving stores, Sport Direct’s team is also understood to have put processes in place that will ensure its future success.
These include reducing payment terms for concession partners from 55 days to just 10.
“This is a brilliant strategic decision because not only does it help with the cash flow for concessions who lost hundreds of thousands — and in some cases millions of pounds — but it also reduces the credit risk for concessions,” Shouly continued.
“It also sends a strong message to all of HoF’s brand partners and concession partners that Sports Direct will stand by you and support you and will do everything it can to help you survive the loss you suffered as a result of the mismanagement of the company by its senior management team.
“This is going to take a lot of investment and effort from Sports Direct but they are ready for the challenge and have energised and motivated all of us to work with them to bring back HoF to its glory days.”