Employees at House of Fraser’s Oxford Street store were celebrating on Tuesday as new owner Sports Direct revealed a reprieve for the flagship London branch.
Along with 30 other House of Fraser outlets, Oxford Street had been destined to close as part of the department store group's desperate attempt to avoid collapse.
But collapse it did, under the weight of almost £1 billion of debt and mounting losses, estimated at some £50 million this year. Within hours of the appointment of administrators, billionaire Mike Ashley’s Sports Direct swept in with a £90 million cash bid for the business, in which he had already built up an 11 per cent stake.
The Oxford Street deal is the first to be agreed between Ashley and House of Fraser landlords, and has raised hopes that other branches facing the axe may also be saved. Thousands of jobs are at stake – House of Fraser employs 5,000 people directly and a further 10,000 or so in concessions.
The Dundrum store in Dublin, where Ashley is awaiting approval for the purchase by the Irish competition authorities, employs more than 200.
The Sports Direct boss has said he wants to keep as many of the stores open as possible, but has given little detail of his plans so far, other than he wants to bring in “cool brands of the moment”.
Victims piling up
While Oxford Street employees may well see Ashley as the “saviour of the high street”, victims of the collapse of the 169-year-old department stores group are piling up rapidly – and there are more to come.
On Monday, the luxury handbags and accessories group Mulberry became the first concessionaire to reveal the cost, with its already depressed shares shedding more than a quarter of their value as the group said it would take a £3 million hit to profits.
Mulberry operates 21 concessions in House of Fraser stores, which generate about 10 per cent of its revenue, and is owed £2.4 million by the retailer. In total, about 1,000 suppliers – including Gucci, Armani, Hugo Boss and Liam Gallagher’s Pretty Green fashion label – are owed almost £500 million.
But Ashley is not on the hook for any debts incurred before he bought the business and a number of suppliers have moved swiftly to remove their stock from stores. Others are holding on, hoping to thrash out a deal for partial payment with Sports Direct.
A dispute over payment has put more than 600 jobs at risk at two House of Fraser warehouses, operated by XPO Logistics. The company is owed £30 million and last week stopped processing orders.
All online orders have now been cancelled, although refunds are being made. The department store group’s website also remains unavailable “due to site maintenance” with online browsers redirected to another of Ashley’s businesses, flannels.com, where they are urged to “browse the latest luxury fashions”.
Customers with gift cards or vouchers have been told that Sports Direct will not accept them.
The group’s pensioners are also likely to lose out. Ashley was not obliged to take on the pension scheme, which has 10,000 members and could well end up in the pensions lifeboat. The Pension Protection Fund is currently assessing the scheme’s finances and, if it does take it on, retired employees will receive reduced benefits.
The unions, grappling with the loss of tens of thousands of jobs in the retail sector over the past year, are urging Ashley to play fair. As workers at XPO were put on notice of redundancy, Alan Costello of the GMB said: "It's time for Mike Ashley to show that this rescue plan for House of Fraser is not simply a plan to boost his bank balance at the expense of House of Fraser workers and our members."
Ashley has long been a controversial figure in the City – where one veteran analyst routinely refers to him as “Mad Mike” – and many are unconvinced that he will be able to stem the decline at the latest addition to his retail empire.
His experience thus far in the struggling department stores sector is unimpressive. Not only has he lost out on his House of Fraser shares, he was recently forced to write down the value of his near-30 per cent stake in rival Debenhams by £85 million.
There is a ray of hope for House of Fraser suppliers. If Ashley really is determined to transform it into “the Harrods of the high street”, he’ll need to keep in with the cool names in the fashion world. The easiest way to do that would be to settle the bills – at least those of the suppliers he wants to keep.
Fiona Walsh is business editor of theguardian.com