LONDON — Tremors from the collapse of the House of Fraser are expected to widen. Like Mulberry, which saw its shares plummet 30 percent on Monday, suppliers connected to the 169-year-old department store are likely to flounder alongside the retailer as the bankruptcy drama unfurls.
Sports Direct owner Mike Ashley bought House of Fraser for 90 million pounds shortly after it went into administration on Aug. 10. The department store was sold as a pre-pack deal, which means that Ashley isn’t liable to pay off the department store’s debt. “He could walk away,” commented Diane Wehrle, marketing and insights director at Springboard, while noting that this would undoubtedly sabotage any brand partnerships going forward.
Earlier in the week, Ernst & Young published a report listing the amount of debt HoF owes its creditors, which includes companies in the beauty and fashion sector such as Clarins U.K., Nails Inc. to J. Barbour & Sons, Giorgio Armani and L.K. Bennett. The total debt accrued by HoF is estimated to total 884 million pounds.
J. Barbour & Sons declined to comment and L.K. Bennett, and Giorgio Armani could not be reached for comment.
“It depends how much brands are owed by House of Fraser, but some of these retailers are private so there’s no share to impact,” said Kate Ormrod, lead retail analyst at GlobalData. “It’s likely to be smaller brands, which are hit the hardest.”
George Wallace, chief executive officer of MHE Retail, thinks that Mulberry’s profit warning reinforced the gravity of the situation. “All major suppliers and brands were already very nervous about their future with HoF, and Mulberry’s news underlines that nervousness,” he said.
As a result, retailers such as Jigsaw and Karen Millen had withdrawn their stock from the department store moments after it went into administration. “I can confirm that Jigsaw removed all its stock from our 20 HoF concessions last weekend Aug. 11 and 12,” a spokeswoman from Jigsaw said. She was unable to provide further comment.
Ormrod noted that this is just the tip of the iceberg. “Clearly this will taint the relationship that House of Fraser has cultivated with its concession brands,” she said. “Mike Ashley and the management team at House of Fraser will need to rectify the situation swiftly. This will also make brands reconsider how dependent they are on the department store concession model. It could provide an opportunity for other department stores including Debenhams to forge new partnerships.”
Springboard’s Wehrle agrees that the ball is in Ashley’s court. “It’s going to be quite a challenge for House of Fraser to regain support from brands at the moment and for them to have any trust in retailers is going to be equally challenging,” she said. “Different brands have different levels of exposure at House of Fraser, which means that the department store is a key outlet to those brands. It’s a two-way relationship so it also depends on how amenable these brands are and how confident they feel with Ashley’s recovery plans.”
House of Fraser declined to comment on any of its brand partnerships.
Ashley will have to return to the drawing board. Days after he revealed his grand plans to British tabloid, The Sun, to turn HoF into “the Harrods of the high street,” XPO Logistics, the department store’s main supplier, stopped processing orders.
GMB Union, the union for logistics workers, has accused HoF of stripping 627 jobs at XPO Logistics. “This is a massive blow to our members based at depots in Wellingborough and Milton Keynes who have been left in limbo. When companies like House of Fraser crash, history shows that asset stripping is often the consequence,” said Alan Costello, organizer at GMB, in a statement released today.
“You’ve got to question the motives for this buyout and ask whether Mr. Ashley has got the interests of the company and its workers at heart. It’s time for [him] to show that his rescue plan for House of Fraser is not simply a plan to boost his bank balance at the expense of House of Fraser workers,” Costello said.