To say it has been a turbulent week for Sports Direct Group is an understatement.
To say it has been a turbulent week for Sports Direct Group is an understatement. Its results announcement was shambolic: pushed back by days, then hour by hour, before finally being released on Friday at 5.30pm.
And the outlook was not good. Not only did Sports Direct Group’s EBITDA fall 6% year on year in the 52 weeks to 28 April 2019, House of Fraser, which Ashley bought in August last year, made an operating loss of £54.6m.
But the real blow to suppliers came from Ashley himself, when he said that problems at HoF are “nothing short of terminal in nature”. To rub salt into the wound, he also highlighted how, in hindsight, he should have thought twice about buying the department store chain.
When HoF went into administration last year, suppliers were hit hard, and many were concerned about the future of their businesses. However, following the buyout, several met with Ashley directly, and told Drapers they came out of their meetings with a positive outlook.
Speaking to suppliers this week, Ashley’s words were unexpected and extremely worrying. He said that several HoF stores are not profitable, despite paying no rent, and described the situation as “unsustainable”. Suppliers will now be looking for answers to the question of how many HoF stores Ashley expects to close and the future strategy of the business.
It is difficult to decipher what has gone so wrong. It was no secret that HoF was in dire straits when Ashley bought it, but he had bold plans to reposition it into the “Harrods of the high street” and rebrand some branches as more high-end stores under the Frasers name. He had started to convince the industry that HoF could be turned around.
There are questions over whether Ashley did his due diligence, but he is a smart businessman and it is difficult to comprehend how he would have made such a catastrophic impulse buy.
Department stores are the lifeblood of many suppliers, but they will undoubtedly be looking for alternative options following Ashley’s alarming outburst. As he strives to move forward with Sports Direct, HoF, Frasers and Flannels, Ashley must remember that the success of these businesses lies with the relationships with suppliers.