Mike Ashley secured House of Fraser’s future on London’s Oxford Street this week, however, suppliers have warned of job losses, profit shortfalls and even risk of closure as debts are revealed.
Ashley signed to keep the HoF flagship open in a deal that Sports Direct said “cements his intentions for the department store chain”. The Oxford Street store was due to close in January under HoF’s pre-administration company voluntary arrangement plan.
James Keany, head of national agency at CBRE, which is acting for Sports Direct, told Drapers it had spoken to 90% of landlords so far, and it had been “a positive process”. He added that Sports Direct is trying to keep “every one of the 59 stores open”.
As revealed by Drapers last week, the owner of Edinburgh Woollen Mill Group, Philip Day, is in talks with a group of landlords to take over several HoF stores with a view to running them under the Days Department Store fascia.
Despite the Oxford Street deal, suppliers have told Drapers they are weighing up their options as they meet with Ashley to negotiate contracts going forward.
“We had a very straight conversation [with Ashley]. He knows the law and he isn’t going to pay the debt as he doesn’t have to – it is not his responsibility,” said one supplier.
“Suppliers need to stand together if we are to have a chance. So many other companies are going to go under because of this. We need the government to take this seriously and take action.”
One brand stocked in HoF said: “We are due to meet with Mike Ashley and the senior team this week, but I am not expecting him to concede on paying anything he doesn’t have to. We have other options, so we have the opportunity to walk away if we need to, but we would like to work with them going forward.”
One concession holder told Drapers he had met with Ashley and had agreed to continue working with HoF, but added that he was “concerned” about the guarantee behind the business.
A report from administrator EY has shown House of Fraser’s unsecured non-preferential creditors, including suppliers, were owed a total of around £484m.
EY has said the amounts owed will not be paid, as only £600,000 will be available to be distributed among all the unsecured creditors under the insolvency legislation. Sports Direct is not legally obliged to make payments for any goods sold before it acquired HoF through a pre-pack administration.
Among the hundreds of creditors the fashion brands, and suppliers owed the most are: Ralph Lauren’s Polo UK (£9.4m), Kurt Geiger (£4.9m), Tommy Hilfiger (£3.4m) and Phase Eight (£3.4m).
Mulberry, which is owed £2.4m, was the first brand to publicly warn of the impact of the shortfall on the business. It is expected to provide £3m in exceptional costs for the six months to 30 September 2018.
XPO Logistics, the company running HoF’s Wellingborough and Milton Keynes distribution centres, is owed £30.4m by HoF and as a result placed more than 600 members of staff into consultation this week. GMB, the union for the logistics workers, said a total of 627 jobs are being cut.
HoF took its website offline on 15 August following a dispute with XPO, which stopped accepting goods and processing deliveries for the retailer. The following day HoF contacted shoppers to say it has cancelled all orders that have not yet been sent.
The HoF website is still down and directing shoppers to Flannels, which is also owned by Sports Direct.
One supplier said: “We have stock in XPO’s warehouse that is not going anywhere, and we have lost a week’s sales while that stock ages. The longer the website is down, the more people will lose faith in the company. We have had very little communication so far so we’re trying to just get the next steps and then we can decide how to proceed.”