September 4, 2019
From downing a beer among Newcastle United fans during a game against Arsenal in 2008, to telling a 2017 high court hearing of his self- titled power drinking exploits, retail tycoon Mike Ashley has never shied away from his proclivity for a pint.
What is proving more difficult for the magnate to stomach, however, is the sobering reality of his £90 million House of Fraser takeover.
Latest results show the department store chain recorded an operating loss of £54.6 million.
The business, said the Newcastle United owner, is in a “very bad” state, revealing more stores could yet close and that the acquisition has led to “significant uncertainty” over future profitability across his Sports Direct group.
According to Sports Direct’s delayed annual financial report for the year to April 28, released in late July, group underlying earnings before interest, tax, depreciation and amortisation (EBITDA) fell six per cent to £287.8 million.
However, when excluding House of Fraser, underlying EBITDA grew 10.9 per cent to £339.4 million.
So, has the mogul made a mistake? Not necessarily, says Gateshead-based retail expert Graham Soult.
Citing his plan to relaunch the department store under its luxury-focused Frasers moniker – currently used by the operator’s flagship Glasgow store – Graham says the Magpies chief has the opportunity to restore a prestige to the brand.
He also says the tycoon will be able to cherry- pick the best elements of his expanding retail operation, which includes Flannels – known for selling high-end labels such as Gucci and Versace – and clothing retailer Jack Wills, bought in a £12.75 million pre-pack administration deal in August.
“The department store model needn’t be dead,” says Graham, who is owner and founder of retail consultancy CannyInsights.com.
“I recently visited Sandersons, an independent department store at Fox Valley in Stocksbridge, near Sheffield, which had fantastic boutiques, wonderful staff and lots of things that make a virtue of its space.
“Part of the problem is that if you go to a
House of Fraser store, it doesn’t matter if you’re in Darlington, Middlesbrough or wherever, the estate is pretty much the same.
“However, Flannels is beautifully presented and if you take that and the quality of its brands, mix in some of Sports Direct’s products and other areas of his business, like Jack Wills, you start to see quite a plausible department store.”
Graham also praised Sports Direct for using its financial report as a platform to encourage Government action on the country’s “antiquated” rates system.
“If you look at Governments of recent years, they have tended to shy away from any wholesale reforms of how business rates work,” he adds.
“Landlords can be flexible on rental agreements, but the rates can be the killer.
“They are a big issue, from your big department stores down to your smaller independents.”