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House of Fraser dies and rises again thanks to Sports Direct – but what next?

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As resurrections go it was impressive. Seconds after House of Fraser announced that it was going into receivership, Mike Ashley, founder of Sports Direct, stepped in to rescue the ailing department store for the bargain price of £90million. Will he now turn it into the ’Selfridges of Sports’?

“The group has acquired all of the UK stores of House of Fraser, the House of Fraser brand and all of the stock in the business,” a Sports Direct communique announced, but what next for House of Fraser?

The move leaves the future of 59 HoF stores that were expected to open today unclear, including 31 that had been the market for closure and 17,500 jobs. More than 6,000 jobs had already been set aside to be lost as part of a process which was subject to a now-settled legal challenge with HoF landlords and Chinese firm C banner, which pulled out of a £150m rescue plan less than a fortnight ago.

It also see the retailer still needing to find £40m to pay rent bills to avoid going bust.

Last week, Mike Ashley was planning to implement his rescue plan for HoF, but he faced competition from Phillip Day, owner of The Edinburgh Woollen Mill Group, which owns Peacocks, Jaeger, Jane Norman, Austin Reed, and other high-street retailers. 

But it seems once the administrators were in, they saw the sense in Ashley’s plan – not least the fact that he has the cash and, moreover, has the cash to invest in the brand going forward, experts close to the matter reveal.

The move also realises Ashley’s long-harboured dream to expand his retail empire and add a well-respected High Street name to his portfolio. By rescuing the 169-year-old retailer, in which he has held an 11% stake since 2004, he can do that – but what can Ashley bring to HoF that previous owners can’t?

According to George Lawrie, VP, Principal Analyst at Forrester: “Sports Direct is on the record as wanting to develop into the ‘Selfridges of Sport’ with better-quality products from more premium brands. House of Fraser acquisition fits with Sports Direct’s strategy of competing for more affluent buyers with premium taste. I suppose the move has also to do with a lot of competition at the discount end.  When making strategic decision about the future of high street chain, the new owner will need to keep in mind that House of Fraser’s shoppers are more likely to be brand loyal.”

Sofie Willmott, senior retail analyst at GlobalData, says: “To give House of Fraser the best chance of survival, Sports Direct and its owner Mike Ashley must make drastic changes to both its 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 continues: “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.”

Willmott concludes: “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.”

Graham Cooke, chief executive officer and co-founder of Qubit is more circumspect. He believes that: ”House of Fraser going into administration isn’t out of the blue. It spent only £25m on an upgrade of its ecommerce platform which, when compared with the £500m that John Lewis spent on its digital revamp, highlights a huge gulf in online capability. This ultimately impacts how good an online shopping experience can be provided for their customers and, given that 80 per cent of purchases are now made online (according to Royal Mail), a poor experience will have a huge impact on a retailers income.”

He adds: “But what is a good experience? What should the House of Fraser be aiming for? In short, consumers are looking for a more personalised service that allows it to compete with Amazon.”

“Typically, people will regularly shop with up to five online retail brands, one of which will be the retail behemoth. This is because it offers a very modern service – it’s hyper-personalised, creating an online shop that is tailored to each and every one of its customers. It also works just as well on mobile, giving customers the opportunity to buy anywhere. Such customer-centricity is key; House of Fraser’s strategy over the last five years has been product-first. The impact of this is now playing out as customers choose to shop with retailers that give them the service they want rather than products the retailer thinks they should want.”

He concludes: “This combination of product-centricity and lack of online investment meant that House of Fraser simply couldn’t meet the expectations of the modern customer: a shop personalised to their needs, available on all platforms and serving them what they want when they want it. This strategy can deliver a revenue growth of 6%, income that House of Fraser desperately needed.”

Richard Lim, Chief Executive, Retail Economics, however speaks for many industry watchers when he says “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”. 

He continues: “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.”

Paul Souber, Co-Head of Colliers International’s Retail division concurs that the move could be good for the High Street as a whole: “This could be viewed as positive news for high streets nationwide as despite the doom and gloom sentiment surrounding the sector at present, this is really a boost in confidence for both landlords and retailers, as well as employees in the trade, who were due to potentially lose their jobs.”

Souber continues: “In addition, it will be interesting to see how Sport’s Direct’s multichannel experience could help to turn around House of Fraser’s department stores’ ill-fate. As we are all well aware, retailers and landlords are facing the most challenging environment since the post global financial crisis of 2008, driven by changing consumer trends, higher inflation, lower consumer spend and changing shopping habits. Over the past year, there’s been a raft of store closures, administrations and CVAs being announced, which in part, has been blamed on the increasing online and social media retail space. Retailers that provide the right experience and service are really adapting the way that people shop, and as a result, are changing the requirement for the bricks and mortar store so it would be interesting to understand Sports Directs’ take on this and whether they really relish the challenge and are able to adapt House of Fraser’s customer experience through online, physical and social sales, in order to keep apace and meet the consumers requirements of today perhaps utilising in part the Flannels facia.”

Image: House of Fraser

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