House of Fraser under Sports Direct: 6 months on

It's been just over six months since House of Fraser was rescued from administration by Mike Ashley's Sports Direct. How much has the department store changed?

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House of Fraser Mike Ashley

When Sports Direct tycoon Mike Ashley vowed to keep 80 per cent of House of Fraser stores open, it sounded like good news.

This is hardly surprising given how the department store chain’s 17,000 employees were at risk of losing their jobs when it launched a CVA in May last year. The CVA, which came after weeks of speculation over its financial health, was subsequently approved by creditors in June. It included wide-reaching restructuring plans to keep House of Fraser afloat, namely shutting down 31 out of 59 stores – more than half of the store portfolio.

As the retailer set in motion the initial stages of the major restructure, its future was suddenly plunged into further uncertainty when a major Chinese investor pulled out of a deal it made for the CVA. C.Banner, also the parent company of Hamleys, had promised an investment of £70 million for House of Fraser and that it would purchase a 51 per cent stake in the business from the previous majority owners. Both would only materialise once the CVA was complete.

“For all the stick Mike Ashley takes, he has an impressive track record in business.”

However, C.Banner withdrew its planned cash injection in late July – just days after Moody’s downgraded House of Fraser’s credit rating to one that deemed it in technical default on its loans. This was worse than the “very high risk” rating it received in December.

In desperate need of £40 million worth of new funding by August 20, as well as £25 million to pay for its quarterly rent bill in late September, House of Fraser was suddenly forced to find new investors at such short notice.

The retailer entered discussions with Mike Ashley’s retail empire Sports Direct – who at the time had an 11 per cent stake in the department store chain – and Philip Day’s Edinburgh Wollen Mill Group. But negotiations with both failed to lead to a rescue deal, and on August 10, House of Fraser was forced to call in administrators. Fears were rife that it was about to become the biggest high street casualty since the fall of BHS just two years prior.

Within hours though, Sports Direct swooped in to buy House of Fraser for £90 million in a pre-pack administration deal, which meant it could acquire the assets but not the debt. Ashley went on to declare his ambitions to turn the department store into the “Harrods of the high street” and the industry cautiously welcomed his promise to keep more than 80 per cent of its stores open.

“For all the stick Mike Ashley takes, he has an impressive track record in business and if there’s anyone that can save an ailing high-street retailer during difficult market conditions, it’s him,” Alessandra Mariani, strategist at retail consultancy Fitch, told Retail Gazette.

“But House of Fraser poses quite a challenge, even for the ‘King of the High Street’; it’s suffered many years of under-investment and its stores need a complete overhaul to truly position it anywhere close to its luxurious counterpart, Harrods.”

It’s now been just over six months since Ashley’s Sports Direct bought House of Fraser. It has undeniably faced many changes and challenges, including having its senior and director level management team dismissed in October by Sports Direct, as well as countless reports of fashion label concessions and suppliers taking multi-million pound hits in their accounts due to money owed in the wake of the administration.

In addition, Ashley called for an insolvency service probe into the cause of the department store’s administration. It was alleged that House of Fraser bosses were withholding critical information in the lead up to its downfall.

“House of Fraser poses quite a challenge, even for the ‘King of the High Street’.”

Yet as Ashley attempted to pursue his ambitions in turning the department store into the “Harrods of the high street”, it has been unclear as to what kind of changes he has implemented. Peter Moody, managing director at digital marketing agency MullenLowe Profero, was unsure as to how Ashley wanted to turn House of Fraser around.

“Since Mike Ashley’s acquisition of House of Fraser over six months ago, it is still not clear what the retail mogul wants to do with the retail chain, other than a vague promise of making it the “Harrods of the high street’,” he told Retail Gazette.

Moody observes that since the takeover, Ashley has focused on keeping stores open to customers, instead of revamping the company itself. Indeed, 55 stores House of Fraser stores now remain open, with only four shutting down.

“Ashley has made small, smart changes to the store since buying it for £90 million last year,” Moody said.

“He has focused on keeping as many of House of Fraser’s 59 stores open by railing against landlord rent prices and he has sought to reduce overhead costs of headquarters by centralising his business empire.

“The lack of major changes shows that he believes that the core of the business is viable – but it needs some challenger thinking applied to enable it be leaner and run better.”

On the other hand, since Ashley’s takeover, many House of Fraser stores faced criticism due to overhauled shop floors resembling the layout of Sports Direct. Shoppers also noted that dozens of upmarket brands that remained on the shelves, such as Ralph Lauren, had their prices slashed from £335 to £80. Such labels also appeared to be replaced with sportswear brands such as Under Armour, Reebok and Puma.

“The key to success – not just for House of Fraser, but for all retailers in the challenge against ecommerce.”

“What was ‘new’ was there were a couple of discreet sale areas in the store,” University of Stirling retail professor Steve Burt explained.

“One flagged as menswear and the other womenswear, a distinct area of the floor with product from a number of brands – but mainly House of Fraser – simply presented by size on rails. A classic sales or bargain-style presentation a la TK Maxx.

“There was also an area where a number of Sports Direct sportswear and leisurewear brands had been introduced. Not branded as a Sports Direct area, but a simple presentation akin to some of the Sports Direct-owned brands that are available in their stores.

“The Glasgow store has several ‘rooms’ off the main floor and atrium – they were in one of these at the back of the store presented in Sports Direct style – shoe boxes, rails, etc.”

Burt believes there have been no significant changes within the House of Fraser stores in terms of the way it looked.

“I was in the Glasgow store a few weeks ago and on the surface, as a consumer, not much seemed to have changed in terms of the look of the store,” he told Retail Gazette.

“There was still quite a bit of sales and promotion activity amongst the brand concessions – but again that is not uncommon across the sector at the moment.”

It can be argued that department stores have been struggling to keep up with the shift in consumer behaviour over the years – especially the dramatic shift to online. A key factor that Ashley has possibly overlooked is the improvement of House of Fraser’s website.

“It is still not clear what the retail mogul wants to do with the retail chain.”

Customers were told in September that they would receive no refunds for goods ordered online – a month after Sports Direct acquired the chain. It may seem like a gamble, especially as customers increasingly criticise the department store’s online platform.

Furthermore, as customer experience becomes an increasing focus in British retail, it remains questionable as to how Sports Direct has been investing in this area in the past six months, nor for the short or long term future.

“The key to success – not just for House of Fraser, but for all retailers in the challenge against ecommerce – is to think about the in-store experiences they’re offering customers,” Mariani said.

Moody added: “It feels like Ashley is avoiding the persistent problem of what the future experience in the retail environment will be or should be for the likes of House of Fraser.”

“As customers expect more personalised experiences – akin to what they experience through ecommerce platforms – Ashley needs to prepare for the future.

“He certainly has the credentials and funds to do this after investing a undisclosed seven sum figure in in-store technology for Sports Direct late last year.

“However, doing this for House of Fraser is no easy task. I would say the jury is out and it will come down to how agile he can be to transform the customer experience, especially in digital.”

The Retail Gazette has contacted Sports Direct for comment.

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1 COMMENT

  1. As an Independent, we have certainly gained business from the HOF debacle. Consumers seem very confused about what the HOF stands for or where it is going. our ex HOF customers have been very happy with the personal service of an Independent.

    While Mike Ashley is correct in stating the High Street is finished (in its current form), why then get involved with loss making retailers like HoF and the doomed Debenhams? He may have spread himself too thinly, which is always the danger in retail and the big want to get even bigger, without looking at the wider implications.

    There is no tangible evidence as yet that HoF will ever become ‘The Harrods of The High Street’ and how much money is Ashley prepared to spend – some would say waste – to achieve that aim. My hunch is that the brand will gradually be wound down over time as footfall continues to head south, with or without a merger with Debenhams.

    While the jury may be still out, the accounts is the bottom line and historically they have never been shinning diamonds for HoF, so Ashley has it all to prove.

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