Harrods of high street
Mike Ashley unveils his bold vision to take House of Fraser up a peg or two
Mike Ashley’s £90m swoop for House of Fraser was more of a shock than a surprise. The Sports Direct founder has made no secret of his desire to seize control of the stricken chain. Narrowly missing out on a takeover to China’s Sanpower four years ago may have frustrated his efforts, but it did not dent his determination.
When he bought the ailing retailer out of administration on Friday there was a sense of inevitability about the deal. But while Ashley’s swoop may have been a long-time in the making, details of his plans for the 169-year-old retailer have proved scant.
That changed yesterday, when he gave a newspaper interview offering glimpses of how he could transform the cash-starved chain into the “Harrods of the high street”.
The boldest of his pledges is to keep 80pc of House of Fraser’s stores open. Under Ashley’s plan around 12 of the 59 stores will shut. That is significantly less than the 31 earmarked for closure through a restructuring plan put forward when the chain was searching for a buyer.
By not executing the Company Voluntary Arrangement (CVA) in its current form, Ashley is indicating that his strategy has the strength to jump start a clutch of stores previously deemed beyond repair.
This could be achieved by including House of Fraser in his existing plans for Sports Direct and Flannels.
Under the direction of Michael Murray, Sports Direct’s head of elevation, the retailer has been closing smaller sites and shifting operations into flagship stores with a polished layout and more floor space.
In step with this strategy, Ashley has said that whole floors of larger House of Fraser stores could be given over to Sports Direct and Flannels.
John Stevenson, retail analyst for Peel Hunt, believes Ashley may decide to be even bolder.
“Some of the House of Fraser stores that were set for closure would have been more marginal,” he says. “Now, would those marginal stores work as a Flannels, or as a Sports Direct? It depends on the size of the store and the location.”
Any plan for the House of Fraser may also be drawn up with other deals in mind.
The Telegraph has reported that Ashley is considering increasing his 29pc stake in Debenhams so he can mount a takeover, paving the way for a merger with House of Fraser.
Investors pushed Debenhams’ shares up 4pc yesterday to 13.3p on the prospect of a mega deal.
For now, Ashley’s main strategy for attracting customers is to shift House of Fraser upmarket.
Ashley has said that his “Harrods of the high street” vision would be realised by introducing luxury brands, such Gucci and Prada.
This could prove to be a shrewd move by Ashley. Sales growth at luxury department stores such as Fortnum & Mason and Harrods has outperformed Marks & Spencer and Debenhams over the past five years. According to Globaldata, the growth rate at luxury department stores will be 9.8pc for 2018 in contrast to a 2.1pc sales decline at mid-market rivals.
The market research company says luxury department store chains are a destination for UK shoppers and overseas tourists thanks to a sustained investment in the feel of their stores.
Creating an experience-led shopping environment will also form a part of Ashley’s strategy.
The tycoon has already been toying with retail experience formats through Sports Direct. His 25.8pc stake in Game Digital has resulted in Belong e-sports arenas being introduced. One plan mooted by the billionaire is to introduce a so-called “concierge click and collect” service at House of Fraser. This would allow customers to book a changing room and a stylist, alongside ordering online and collecting shopping in-store.
Rival department store chain John Lewis is already making experience shopping pay. The six personal stylists at its new Westfield site in White City are driving 20pc of the store’s total womenswear sales.
For Ashley, delivering this strategy will also depend on getting suppliers on side. Sofie Willmott, senior retail analyst for Globaldata, says Ashley will struggle to attract high-end brands.
“Mike Ashley will find it difficult to convince concessions and suppliers that continuing to operate a department store format is the way forward,” she says.
Part of the challenge will be improving the existing relationships with suppliers following House of Fraser’s administration.
Sports Direct has only promised to pay House of Fraser suppliers and concessionaires for goods sold since it took over the chain on Friday, according to reports. This means suppliers could miss out on tens of millions of pounds.
However, the more telling question is whether House of Fraser can serve a purpose for luxury brands. “How many outlets do these luxury brands want to be in,” says John Stevenson of Peel Hunt. “Is there a market for something like that in Doncaster, where House of Fraser has a store? You would have to question that.”
Helen Brocklebank, chief executive of Walpole, the body that represents luxury goods businesses, is more sceptical. “Luxury brands are not magic fairy dust you can sprinkle over a store environment that badly needs investment and imagination,” she told the Evening Standard.
“Harrods is investing £250m into creating the in-store environment luxury customers expect. Ashley has a hard act to follow.”