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House of Fraser suppliers stand to lose millions of pounds from retailer's collapse

HoF owes its suppliers £484mln, according to documents from administrators EY
House of Fraser
Mike Ashley's Sports Direct has agreed to buy House of Fraser from administrators

Brands that supply to House of Fraser (HoF) have been left counting the cost after the department store chain collapsed into administration.

HoF appointed EY as administrators earlier this month after failing to reach a deal with creditors. Mike Ashley’s Sports Direct has agreed to buy HoF for £90mln in cash.

Luxury handbag maker Mulberry Group PLC (LON:MUL) – which operates 21 concessions in House of Fraser – has become the latest victim to the retailer’s failure. It told investors on Monday that it would take a £3mln hit in its results for the six months to September 30.

READ: Mulberry shares plunge as it takes £3mln hit from administration of House of Fraser

HoF owes its suppliers £484mln, including £2.4mln to Mulberry, according to documents from EY.

The company also owes Giorgio Armani £1.59mln, Kurt Geiger £4.8mln, Ralph Lauren’s Polo UK Limited £4.8mln and Phase Eight £3.4mln.

Other brands that stand to lose money include Superdry PLC (LON:SDRY), Aspinal of London, Warehouse and Oasis.

XPO, the American transport group embroiled in a dispute over payment with Sports Direct, is owed just over £30mln.

HoF suppliers unlikely to see money owed 

However, HoF’s suppliers are unlikely to see the money since Sports Direct is not obliged to pay them and Ashley has a track record of being careful with the pennies at the sportswear retailer. 

READ: Big task for Sports Direct's Mike Ashley in tidying scandal-hit past

HoF’s suppliers will also take a hit from the company’s plan to close about 31 stores. Brands that rely on concessions at HoF will take the biggest hit and Mulberry is one of them.

“While the company does sell online, Mulberry retail strategy depends on the physical journey of shopping in upmarket retail concessions, which means that its fortunes can rise (and fall) with the likes of House of Fraser,” said Artjom Hatsaturjants, research analyst at Accendo Markets.

He added: “And until Mulberry can decouple its business model from reliance on department store concessions (or trading conditions markedly improve), its share price will maintain its downward momentum below the already miserable -58% performance it’s seen since the beginning of the year.”

The same could be said for many of the chain’s other luxury brands like Ted Baker PLC (LON:TED), Hugo Boss and Giorgio Armani.

Tough retail market

The problem goes beyond the impact of HoF’s collapse.

Fashion brands are also having to contend with a tough UK retail market due to weaker consumer confidence and online competition.

Mulberry said the UK market has continued to “remain challenging” and sales at HoF stores have particularly been affected. The group expects a slowdown in sales to dent full year profits.

“HoF is the symptom rather than the cause, but its failure is just making the pressure on these brands tougher,” said Neil Wilson, chief market analyst at Markets.com.

“This is really a sign of how it’s not just the retailers that are affected by the decline on the high street, but also some of the key brands that depend on department store concessions and the visible presence they offer to consumers.”

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