Shoppers walk past House of Fraser's flagship store in Oxford Street, London on August 2, 2018.
Landlords are reconsidering their own positions, having suffered drastic rent cuts following the administration © Tolga Akmen/FT

Sports Direct could close as many House of Fraser stores as the previous management planned to shut, as trading remains difficult and landlords consider alternative uses for some sites.

When it bought the department store chain out of administration a year ago, Sports Direct founder and chief executive Mike Ashley pledged to save as many of the stores as possible and lambasted previous managers for what he regarded as defeatism.

But one person in regular contact with Mr Ashley said as many as two-thirds of the original 59 stores could ultimately close. “All he needs is 15-20 refurbished stores trading in the Frasers format. Around 20 will almost certainly shut and I’d say another 20 are up in the air.” 

At last week’s full-year results, Mr Ashley acknowledged that House of Fraser was in worse shape than he expected, losing £54m in the year to April, and that more stores would need to go. 

“There’s going to be a lot of store closures,” he said. “Some of the stores lose money at zero rent. What would the point be of refitting those stores?”

Because House of Fraser was bought out of administration, its stores are operated under licence from the administrators until new lease deals are struck. Many of the stores are operating on rolling or short-term leases at low rents while their performance is evaluated. 

But some landlords are reconsidering their own positions, having suffered drastic rent cuts following the administration. The House of Fraser store in Hull, a landmark building opposite the city’s main railway station, will shut its doors for the last time this weekend partly because Sports Direct and the landlord could not agree on the best way to redevelop the site. 

The owners of the House of Fraser store in Altrincham have also served notice on the company to vacate. A head of UK agency at a major commercial real estate group said that landlords were openly consulting on possible redevelopment schemes involving House of Fraser stores in Richmond, Guildford, Cardiff and Birmingham. He predicted that more would follow. 

“The PR narrative will of course be ‘greedy landlords forced us out’ but they have little choice,” the agent said. “House of Fraser won’t commit to long-term deals and does not want to pay any more rent.” 

“Where you have interesting and viable alternative opportunities for the upper floors in particular, you have got to consider [them].” Such uses include offices, flexible work sites, hotels, leisure, food and beverage or even residential, he added.

Frasers, a brand that originated in Scotland, is the name that will be used by Sports Direct for an upmarket store concept, the first of which will open in Belfast later this year. Mr Ashley’s company spent £95m acquiring the freehold of the Glasgow store that also bears the name and which will be extensively refurbished in the new format. 

Earlier this year, Sports Direct’s head of elevation Michael Murray told the Sunday Times that the company planned to convert 31 stores to the Frasers format — provided it could secure three-year rent-free periods. 

Under its previous management team, House of Fraser had proposed a company voluntary arrangement to deal with the high rents and long leases imposed by sale-and-leaseback transactions in the 1990s. This envisaged 31 store closures, including high-profile sites such as London’s Oxford Street. The plan was abandoned after the offer of a cash injection from a Chinese company was withdrawn. 

The future of several of the stores earmarked for closure in the CVA, notably Oxford Street, has been secured. But others — Hull, Altrincham and Cardiff were all on the original list — now look likely to close. 

A spokesman for Sports Direct acknowledged that more House of Fraser stores may have to close but said that heavy investment was going into the business to raise standards, improve the customer experience and attract new brands.

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