Retail

House of Fraser/Mike Ashley: not his department


Mike Ashley, billionaire, despoiler of fireplaces and would-be saviour of the British high street, wants House of Fraser to model itself on posh retail rival Harrods. His £90m cash purchase of the ailing group means he can dictate its strategy. Turning lossmaking department stores into flashy shopping destinations will be harder.

Mr Ashley bought House of Fraser cheaply. The price is less than one-fifth the sum shelled out by Sanpower Group in 2014 and amounts to less than four times ebitda (a cash earnings measure) for the group (including Chinese activities) in the year to December.

Taking House of Fraser further upmarket will be expensive and the group is losing money fast. In 2017 it reported a net loss of £37m. Mr Ashley has avoided debt and pension liabilities. But fixed costs such as rent and business rates still mean cash will be flowing out of the door from day one. A loss of about £50m is forecast for 2018.

The ebullient owner of Sports Direct already owned an 11 per cent stake in the company so knows what he is getting into. The group has yet to hit on a successful plan to draw in more shoppers. Combining the retailer with Debenhams, which Mr Ashley has a 29 per cent stake in, makes little sense. The two sell different brands to different customers. And Mr Ashley cannot claim to have found a magic remedy for retail woes. Sports Direct’s own same-store sales fell in the UK in the year to April.

Adding luxury names might bring in new clientele but it will require work to convince such brands that the group is secure. The role of Michael Murray, the 28-year-old fiancé of Mr Ashley’s daughter, as “head of elevation” charged with making the brand more deluxe, deserves scrutiny.

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And what will fill the rest of the stores? House of Fraser has around four times the space of Harrods. Mr Ashley has always been good at buying cheaply. But a store chain is different to a consignment of football socks. This time, he may have over-reached himself.

Lex recommends the FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Sign up at ft.com/newsletters.



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