UK department store retailer House of Fraser has been bought by Mike Ashley’s Sports Direct group in a GBP90m (US$115m) deal announced just hours after the chain went into administration.
The rescue sees the UK high street sportswear chain acquire the business and assets of House of Fraser from the administrators including its House of Fraser stores, the House of Fraser brand and all of the stock in the business.
Go deeper with GlobalData
It came after an announcement early this morning (10 August) that the retailer had appointed administrators, putting more than 17,000 jobs at risk.
The move caps a tumultuous few weeks for the retailer, which saw potential new owner C.Banner walk away from a rescue deal on 2 August, casting its future into doubt. Earlier this week it announced the closure of 31 stores after the company settled a legal row with its landlords.
For the year ended 28 January 2017 (the last date to which statutory accounts are available for the parent company and prior to the appointment of the administrators), the House of Fraser group had gross assets of GBP946.3m and made GBP14.7m net profit.
Richard Lim, chief executive of economics research consultancy Retail Economics, notes the acquisition is a “hugely ambitious move” for Sports Direct.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalData“The combination of both businesses will yield some vital cost-saving synergies while it is likely that some of the struggling House of Fraser sites will be rebranded to Sports Direct,” he says. “Nevertheless, this is a part of the industry that is under a huge amount of pressure. Turning around the business will not come easy. The stores are failing to attract sustainable levels of footfall while battling against rising operating costs and shifts in shopper behaviour.
“As the business is reshaped, they will need to create a unique proposition, invest heavily in their online capabilities and create more meaningful in-store experiences if they are to thrive.”
Sports Direct International Plc is the UK’s largest sporting goods retailer by revenue, and operates a diversified portfolio of sports, fitness, fashion and lifestyle fascias and brands including Donnay, Slazenger, Firetrap, Everlast, Kangol, Karrimor and Lonsdale.
Before House of Fraser went into administration, Ashley held an 11% stake in the company. he also owns the designer clothing chain Flannels.
Sofie Willmott, senior retail analyst at GlobalData, concurs, adding Ashley must make “drastic changes” to both product proposition and store environment to entice shoppers back. “This will require significant investment – something which the chain has been starved of in recent years,” she notes.
”Mike Ashley could harness his mixed portfolio of retail businesses to transform House of Fraser, combining his more premium fascias Agent Provocateur and Flannels, which sells brands like Burberry London, Fendi, and Sophia Webster, to create a more upmarket department store. Although very few of House of Fraser’s own brands remain, those such as Issa and Biba could be incorporated into this new format.
”Given the success of luxury department stores like Selfridges and Harrods, Ashley may attempt to replicate their model using House of Fraser’s locations, however it is questionable whether the high end price points would appeal nationwide, particularly given that London-based department store retailers have benefited from tourism.”
Meanwhile, Michael Mulligan, insolvency specialist at Shakespeare Martineau, says the acquisition will likely see a focus on flagship stores.
He adds: “This will be welcome news not only for suppliers who rely on House of Fraser for their livelihoods but also for all employees involved. This is yet another significant high street rescue mission and the crisis shows no sign of abating. With interest rates rising and less money in the pocket of the UK consumer, more household names may be at risk.”
