Mike Ashley pledged to turn House of Fraser into the “Harrods of the high street” last night after his Sports Direct company struck a last minute deal to rescue the beleaguered retailer.
The £90 million buyout, agreed shortly after House of Fraser’s administration was announced yesterday morning, raised hopes for the future of around 17,000 staff across the UK, including those at Jenners in Edinburgh and House of Fraser’s Glasgow store.
But in a statement the billionaire tracksuit tycoon could not confirm the long-term security of staff jobs at all of the 59 House of Fraser outlets, saying only that “we will do our best to keep as many stores open as possible”.
Mr Ashley’s deal was struck through a pre-pack administration process, where a company is put into administration before a new buyer cherry-picks the best assets.
The tycoon, who also owns the football club Newcastle United, beat off competition from retail rival Philip Day, the billionaire owner of Edinburgh Woollen Mill. It is understood that Mr Day’s proposal was in excess of £100m, would have avoided an administration and included House of Fraser’s pension scheme.
However, accountancy giant Ernst & Young (EY), which was overseeing the process, opted for Mr Ashley’s offer.
It is vital that we restore the right level of ongoing relationships with the luxury brandsMIKE ASHLEY
In a stock market announcement, Sports Direct said it has acquired all 59 House of Fraser stores, the brand and all of the retailer’s stock.
The Sports Direct chief added: “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.
“It is vital that we restore the right level of ongoing relationships with the luxury brands. Our deal was conservative, consistent and simple. My ambition is to transform House of Fraser into Harrods of the high street.”
House of Fraser, founded in Glasgow in as a small drapery shop in 1849, has four stores in Scotland – House of Fraser Glasgow, House of Fraser Edinburgh, Jenners in Edinburgh and an outlet at Loch Lomond. Edinburgh’s west end House of Fraser store was scheduled to close on September 15, after the landlord served notice.
In June, House of Fraser said it needed to shut 31 stores and make up to 6,000 people redundant to survive. Than plan fell apart earlier this week when Chinese group, C.banner, pulled out of an arrangement to inject fresh equity.
Leigh Sparks, professor of retail studies at Stirling University, said the situation now remains unclear for staff and for suppliers. “It looks as though Sports Direct will buy everything but given the Company Voluntary Arrangement situation [to shut 31 of the 59 stores], we don’t know exactly what that means,” Mr Sparks said. “I suspect the House of Fraser site will undergo a change of use and be sold on, but Jenners is an iconic businesses that has a big cache and I think there will be an interest in re-inventing and investing in it.
“I would like to think that the owners would see it as an asset. There is value in the brand.”
Prior to House of Fraser’s collapse, Mr Ashley held an 11 per cent stake in the department store chain.
The deal will see the tycoon tighten his grip over the British high street, adding to his sports retailing and “premium fashion” empire. He has also built up stakes in rivals such as Debenhams, Goals Soccer Centres and French Connection.
Like other retailers, House of Fraser has been stung by soaring costs, falling consumer spending power and the growth of online shopping.
The firm saw its business rates bills rise £3.99m to £30.24m this year following a government revaluation, according to research group Altus.
Yesterday, Philip Hammond hinted at possible tax changes to ensure high street retailers are able to compete with online rivals, hours after the House of Fraser rescue deal.
“We want to make sure that the high street remains resilient and that we also make sure that taxation is fair between businesses doing business the traditional way and those doing business online,” the Chancellor told Sky News.
Meanwhile the Unite union has raised concerns about Sports Direct’s record on “poor working and pay practices”.
Scott Lennon, Unite regional officer, 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 House of Fraser. The staff are entering a period of great uncertainty and worry.”
Analysts gave the move a cautious welcome, with Richard Lim, of Retail Economics, saying: “This is a hugely ambitious move for Sports Direct. The combination of both businesses will yield some vital cost-saving synergies while it’s likely that some of the struggling House of Fraser sites will be rebranded to Sports Direct.”
John Moore, senior investment manager at Brewin Dolphin, said the deal looked like a “big opportunity” for Mike Ashley, but could put Debenhams’ shareholders in a difficult position. “Whatever plan he does implement at House of Fraser could drive customers away from Debenhams,” Mr Moore said.
Some House of Fraser suppliers also raised fears that they could lose out if the deal does not include money they are owed.