Sports Direct will decide on the closure of loss-making House of Fraser stores within “months” if the government fails to change the current business rates system, CEO Mike Ashley has said.
Ashley branded the current business rates system “broken and unworkable”, at an investors’ meeting following Sports Direct International’s half-year results today. At the same time, the group rebranded as Frasers Group following a shareholder vote.
“All we want to do is pay what the correct rateable value is from the last set of valuations,” he said, explaining that changes filter through too slowly at present. “If the government doesn’t act soon, the Frasers Group will have to make a move forward.”
When asked how long it would be before the business reviewed loss-making stores as a consequence, Ashley said: “Realistically, it’s months, not years”.
In the 26 weeks to 27 October, group revenue rose by 14% to £204.5m, as a result of Sports Direct International’s recent acquisitions, including Jack Wills, which it bought in August, and House of Fraser. However, if acquisitions are excluded, group revenue fell by 6.4% during the period.
Ashley added that “an awful lot of work” has been put into taking department store House of Fraser, which Sports Direct bought in August last year, from “an unmitigated disaster to a functioning state”.
He backpedalled against previous comments about the “terminal” nature of House of Fraser’s problems, clarifying, “As shown by the fact House of Fraser went into administration and indeed was mere hours from liquidation such was its parlous state, the business was dead, finished, destroyed.
“It was, and it is only through the incredible efforts of those within the Sports Direct group, including the remaining House of Fraser teams, that we are tackling these problems and trying to build a business with a future – a future for Frasers that is hopefully ‘bright’.”
However, he warned that the new year will bring more House of Fraser store closures as some stores are currently paying zero rents and are unprofitable.
At the investor meeting, Ashley was steadfast in not being pinned down on the number of stores that would be refitted or closed in the coming year and beyond.
“To get stuck on store numbers is extremely dangerous,” he said. “It’s the sort of thing I’d do in the past, and if I’d said I would [elevate] 50 stores and only did 49 then somehow I’d completely failed.”
The group plans to open a further five to 10 stores for its luxury retailer Flannels in 2019/20, and said its “elevation strategy” was still very much under way.
”We’re not even halfway through our elevation strategy. We’ve always said this is a many-year process, and we are currently in year four,” said CFO Chris Wootton.
In May, the group revealed plans to change 31 House of Fraser stores into a premium chain under the Frasers name over the next five years. At the time, it announced five stores would open in 2020, modelled on Flannels.
Regarding the Frasers strategy, Wootton confirmed the final payment on the Glasgow store is due to be paid in January.
“From that point, we really start to elevate that store and roll Frasers down into more of the House of Fraser estate,” he said. “We are looking to roll out some of those during the [2020/]21 financial year.”
Sports Direct plans to incorporate Flannels inside its new Frasers concept, said Ashley: “Frasers stores will have Flannels inside of them in a lot of locations, because they have the space, separate entrances and all of the criteria [needed].”
He was keen to emphasise that “House of Fraser and Frasers are very different concepts” but gave little clarity on whether he planned to keep HoF stores open alongside the Frasers chain.
In the meantime, the group is working to transform HoF from a concession model to a wholesale model. The board criticised “the unbelievable complexity” of HoF’s concession model upon acquisition and plans to move as close as it can to a 100% wholesale model.
On future acquisitions, Ashley said: “I don’t think anything is off the table”, and made a flippant comment about the purchase of Harrods in coming years.
“Why would we not look at the very top end in any industry [to] be part of Frasers Group? That could be anything. When you’re into that super-luxury sector, a lot more opportunities would come up because we’re a lot broader,” he said.
Ashley also announced initial plans for a new £100m bonus scheme for all full-time employees, excluding the board.
“We’d probably like to see 50 millionaires and 500 people get £100,000 each,” he said. “It will be spread out over the entire group and I think it’s the right thing to do.”