Thursday 22nd Aug 2019 - Logistics Manager Magazine

Sports Direct spent £90m to kick-start House of Fraser supply chain

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Sports Direct invested almost £90 million to kick-start the House of Fraser supply chain following last year’s purchase of the business, chief executive Mike Ashley has revealed.

In Sports Direct’s results for the year to 28th April 2019, Ashley said: “During the financial year we acquired the trade and assets of House of Fraser for £90m, invested close to that to kick start the supply chain and signed up to the £95m purchase of the flagship Glasgow Frasers store to show we were serious with our investment and strategy.”

Ashley highlighted the problems the House of Fraser business which made an operating loss of £54.6m.  “There was the widely publicised closure of the website and warehouses as we tried to get the business moving in the first days after the acquisition which meant the business was starting on the back foot as we tried to save jobs and stores.

“Despite the frustration on our part we understand the position the likes of XPO were put in when being so fantastically out of pocket because of the previous management’s mixture of misplaced optimism or worse, downright lies,” he said.

And he warned that there were likely to be store closures in the future. “As we have continued to look under the bonnet as we integrate the business, we have found that the problems are nothing short of terminal in nature.

“We have done as much as we could realistically do to save as many jobs and stores as possible, and indeed we appreciate many landlords and local authorities have worked hand in hand with us as we tried to do this. However, there are still a number of stores which are currently paying zero rent and that are still unprofitable and unfortunately this is not sustainable. We are continuing to review the longer-term portfolio and would expect the number of retained stores to reduce in the next 12 months.

“On a scale out of 5, with 1 being very bad and 5 being very good, House of Fraser is a 1, albeit we are trying very hard to turn the business around this will not be quick and it will not be easy. Even though we do believe there could be a bright future for House of Fraser, and indeed have publicised our Frasers vision which we are very excited about, if we had the gift of hindsight we might have made a different decision in August 2018.”

House of Fraser revenue was £330.6 million for the period from 10th August 2018 to 28th April 2019. It made an operating loss of £54.6m.

Sports Direct was frustrated in it attempts to buy Debenhams, ultimately losing its 30 per cent shareholding when Debenhams chose a prepack administration.

Ashley said: “In light of its strong views on the subject Sports Direct continues to examine with its advisors exactly what happened, who was responsible and investigate avenues to seek redress through civil and/or criminal process.”

The Sports Direct International group increased revenue by 10.2 per cent to £3.7 billion, but operating profit was down 20 per cent to £160 million.

Ashley highlighted the challenges facing the high street, and called for an extra tax on online and reform of the business rates regime.

“To illustrate how serious the situation is on the High Street, alongside the almost weekly administrations, CVAs, frauds, and profit warnings, the British Retail Consortium showed May 2019 as the worst on record.

“The Sports Direct Group is not immune to this and indeed if not for the Elevation Strategy we implemented in recent years we would be looking at significant problems in the future. None-the-less, our UK store contribution likes are down 1.6 per cent and we would expect these to be some of the rosier figures from the High Street.

“Myself and other voices in the retail sector have already noted loudly and clearly some of the measures that should be undertaken to help save high streets, these include an extra tax on online and reform of the business rates regime,” said Ashley.