CanMikeAshleymakeHOFtheHarrodsoftheHighStreet?

Departmentstorestypicallyoperatefromlargeretailpremisesinareasofhighfootfalland provideawidearrayofgoodsandservices,forexamplefromcosmeticstoelectricalgoodstoclothingand furniture,toysand foodviamanydifferentspecialiseddepartmentsacross manyfloors.Althoughthismakesthebusinessmorecomplexthanspecialistretailstores,italsooffersriskreducingeconomiesofscaleandscope.KeynamesintheUKandoften overseasinthissectorareMarksandSpencer,JohnLewis,DebenhamsandHouseof

Fraser.

Harrodsdepartmentstorepositionsitselfasapremierretailoutletsellingpremiumbrands andofferingpremiumlocationsandlevelsofcustomerservice.Harrods'operatingmarginis thehighestinthesectoranditsmaindepartmentstorelocatedinKnightsbridge,London, offersafullrangeofproductsandservices.Customisationandpersonalisationofproductsis availableacrossvariousproductareasandtheHarrodsstoreinLondonisthelargestinthe UKwithover300differentdepartmentsoccupyingnearly75,000m2.Harrodsisapopular touristdestinationinLondonaswellforthosewhocanonlyaffordtowindowshop.

TheRiseofTheHouseofFraser

ItallbeganwithonedraperyandhaberdasheryshopinthecentreofGlasgowinOctober 1849,andthegroup'smainperiodofexpansionbeganinthe1920swhenHughFraserIII becamemanagingdirectorattheageofjust21.Atitsheightitbecamearetailempirewith morethan100highenddepartmentstores,includingoneofthemostfamousintheworld. LuxuryLondonstoreHarrodswasaddedtotheHouseofFraserempirein1959,whenHugh FraserIIIoutbidDebenhamstotakecontroloftheiconicname.Onhisdeathin1966,his son,alsocalledHugh,continueditsexpansionbybuyingoutmorethan50companies,with 112intotalby1980.

Sadly,theplayboyretailer'slifestylefinallycaughtupwithhiminthelate1970swhenhewas foundtohavebeensellingstocksto fundhisgamblingaddiction.In1985,theFraserdynasty cametoanendafterabitter,personalandhotlycontestedtakeoverbattlebetweenBritish businessman'Tiny'RowlandandEgyptiantycoonMohamedAl-Fayed,theeventualvictor. Al-Fayedcontinueditsexpansionandopenedbignewstoresinout-of-townshopping centressuchasMeadowhallinSheffieldandtheLakesideinEssexbutin1994Al-Fayed soldoffHouseofFraserbutretainedHarrods.

Thebusinesswasnowsubjecttoalmostconstantchangeandtakeoverbidsleadingto uncertaintywithmanystoressoldoff,leavingpreciousfewinScotland,surelyakeypartof thestore'sidentity.Otherattemptedtakeoversensueduntilin2006,itwassoldtoan investmentconsortiumincludingHunter,HBOS,KevinStanfordandledbyIceland'sBaugur group'sIcelandicretailtycoonJonAsgeirJohannessonmorefamousfor thelow-coststanceofhisIcelandsupermarketchain.

Thefinancialcrisis wassurvivedmuchbetterthanotherdepartmentstoresapartfrom Harrodsandinthefirstsixmonthsof2009,HouseofFraserimproveditssalesperformancebysixteenpercentcomparedtothesameperiodthepreviousyear.

TheFalloftheHouseofFraser

TheBaugurconsortium(asinmanyothersimilarbuyoutsofthatperiod)seemedtoview HouseofFraseraslittlemorethanashort-termmoney-makingvehicleandseemedtoshow littleinterestinitslongtermfuture.Muchneededinvestmentfundsdidnotmaterialiseand soasfarbackas2004,thechainwasbeingdescribedbytheInteractiveMediainRetail

Group,atradebody,asoneofthe"onlinelaggards"that"failedtoembraceinternettrading opportunities".

MeanwhileHouseofFrasercontinuedtobuylotsofsmallerdepartmentstoreconcerns, suchasArmy&Navy,Dickins&JonesandDHEvansandrebrand themundertheHoF name.Thisgreatlyconfusedolderandlocalcustomerswhohasusedtheirshopsfor years!Worsestill,alotofthegoodssoldwithinwerenotevenHouseofFraser's:theywerebeingsoldbymorethan600third-partyconcessionowners.Thechain'sownbrandwastakinga backseatandthestorewasreferredtoasthe'HouseofBrands'.Oftenbrandsnobody knew!

Therewasyetmoretakeovertalkin2013,thistimewithluxuryFrenchdepartmentstore GaleriesLafayetteasabidder.However,in2014HouseofFraserwassoldtoChinese groupNanjingXinjiekou,partofSanpower whichcontrols100companiesinsectors includingbanking,retail,mediaandproperty,withassetsworth4.8bn,accordingtoits websitebutwaspracticallyunheardofinEurope.LedbyYuanYafei,ittalkedboldlyabout hisplanstopumpincapitalandtakethechainglobalandmostimportantlyapushinto Chinawithupto50newstoresunderthename"OrientalFraser".

However,thiswasnotthebesttimetobeadepartmentstore.Salesandprofitswereunder pressurefromtheseeminglyinexorableriseofinternetshoppingandfickleconsumer spending.Amazonnowseemsdeterminedtosellanythingtoanyoneandhasmoved upmarketandorganicandintobricksandmortarwiththepurchaseofWholefoodsin2017.Costsarealsospirallingwithminimumwagesandlivingwagestopayandbusiness commercialratesrisingfastandforcingmanyoffthehighstreet.

EnterMikeAshley

Withtheoutlookprettygrim,andnosignofmuch-neededcapital fromSanpower,the companycollapsedintoadministrationin2018andplannedtocut6,000jobsandclose31of its59storesbeforeSportsDirectownerandaccomplishedmasterofInternetSales,Mike Ashley,saidithadacquiredalloftheUKstores,brandandstockofHouseofFrasereven thoughhehadfacedseriouscompetitiontobuythebusinessfromPhilipDay,thebillionaire behindEdinburghWoollenMillGroup.

ThedealrepresentedastunningcoupforMrAshley,whohasharbouredalong-standingdesiretomovehisretailempireupmarketbyacquiringoneofBritain'sleadingdepartmentstorechains.

Hehasheldan11%stakeinthebusinesssince2014,andalsoownscloseto30%of Debenhamsitsmainrivalwhichalsohasastrongemphasisonfashionclothingunlikethe otherdepartmentstores. AshleyhasSportsDirectconcessionsinmanyDebenhamsoutlets.

MikeAshleyfoundedthenow750-strongsportsfashionchainSportsDirectin1982whenhe was18anditistheUK'slargestsportsgoodsretailer.AsofAugust2018,accordingto ForbesBillionairelist,hewasthe629thrichestmanintheworld.Ashleyhasmadehis moneybybuyingbrandsandmostofthesebrandswereboughtcheaplyfromdistressed sellersandoutofadministration.The firstmajorbrandheboughtwasDonnay.InFebruary 2003,AshleyboughttheDunlopSlazengerbrand for 40million,followedupbyacquiring outdoorgearmanufacturerKarrimorinMarch2003,Kangol for10million,boxingbrand Lonsdale.Among theotherbrandsitownsisthesportsretailerLillywhites.Healsohasa variedportfolioofinvestments,includingintheretailerFrenchConnection.HealsoownsthelingeriechainAgentProvocateur,aswellastheclothingchainFlannels,whichsellsbrands suchasBurberryLondon,FendiandSophiaWebster.

MrAshleyisalsotheownerofNewcastleUnitedFC,buyingitatatimewhenitwasin severefinancialdifficultiesandwithoutduediligencetotheannoyanceofhisBoard.The BBCdocumentary,Mike AshleyUncovered,detailedhisdealingsatNewcastleUnitedwithitbeingannouncedthatheonlydiscovereduponpurchaseoftheclubhowmuchdebttheclub werein,andthatitcosthimanother100muponpurchasetosteadytheclub'sfinancial security,havingnotviewedtheaccountbookspriortopurchase.Ashleyandhis representativesrefusedtocomment,claimingthefilmproducedamajorityofinaccuracies.

Hemadeseveralsubsequentattemptstoselltheclub.Manyfansarguedhehadhadlittle ambitionfortheclubandhadconsistentlyfailedtoprovidemuchneededinvestmentin qualityplayers.Manyfanswantedhimoutandtherewasaconstantvocalprotestagainsthisownership.InJuly2021he finallysoldouttoaSaudiconsortiumtothejoyoffans.

MikeAshleyandSportsDirecthasalsoencounteredcontroversyoverpoorpayand conditions,oftenpioneeringzerohourscontractstokeepdowncostsandbeingsubjectofa documentaryofconditionsandpayinafactoryhewasusinginThailand.Areportbythe Business,InnovationandSkillscommitteein2016concludedthatthecompanydidnottreatitsworkerslikehumans,butSportsDirectsaiditspolicywastotreatallpeoplewithrespect.

TheFutureofHoF:HarrodsoftheHighStreet?

MrAshleysaidonhispurchaseofHoFfromadministration"Wewilldoourbesttokeepas manystoresopenaspossible.Itisvitalthatwerestoretherightlevelofongoing relationshipswiththeluxurybrands".

"Ourdealwasconservative,consistentandsimple.MyambitionistotransformHouseof FraserintotheHarrodsofthehighstreet."

ScottLennon,oftheunionUnite,said:"SportsDirectisaleopardthathasnotchangedits spotsandwehopethatitspoorrecordonpayandemploymentpracticesarenottransferred totheHouseofFraser".

"Wefear forjobsandemploymentconditionsattheHouseofFrasergoingforward.Thestaff areenteringaperiodofgreatuncertaintyandworry."

Required:

UsetheprocessmodeltoevaluateMikeAshley'spropositionthathecan'transformHouse ofFraserintothe"Harrodsofthehighstreet."