Why Billionaire Ashley Can't Put a Harrods in Every U.K. Mall

(Bloomberg) -- Mike Ashley aims to turn House of Fraser into the “Harrods of the high street.” The tycoon will have his work cut out replicating the success of London’s most famous department store with his latest purchase, a chain that anchors many of the U.K.’s struggling mainstream shopping districts.

Ashley’s Sports Direct International Plc rescued House of Fraser from near collapse last week after a would-be Chinese buyer pulled out, prompting the company to begin insolvency procedures. It’s the latest near-victim of a crisis that has claimed retailers like BHS, Maplin Electronics and the U.K. arm of Toys “R” Us Inc.

Why Billionaire Ashley Can't Put a Harrods in Every U.K. Mall

Turning House of Fraser, with 59 U.K. and Ireland stores in less glamorous locations like Grimsby and Hull, into another Harrods won’t be easy. Shoppers still flock to Britain’s most august retailer, where they can buy everything from a 108,000-pound ($138,000) Bottega Veneta gold-and-diamond clutch purse to caviar -- the most expensive of which is priced at 2,250 pounds for 250 grams.

Purchases are packed in green bags emblazoned with the store’s logo, itself a status symbol. Harrods has become as much of a tourist destination as the changing of the guard at Buckingham Palace, with foreign visitors’ spending power boosted by the pound’s fall after the U.K.’s vote to leave the European Union.

70 Percent Off

On a recent afternoon, as House of Fraser’s more utilitarian store windows touted 70 percent discounts, the Harrods flagship in London’s wealthy Knightsbridge district was filled with shoppers navigating its seven floors and 23 restaurants. Federica Rago, who moved to London from Italy four months ago, stopped in to pick up a birthday present for her mother back home.

“It is the one thing I know you cannot get anywhere else,” she said after selecting a Harrods-branded bag for her mother.

Harrods is investing more than 200 million pounds on a facelift. Even as consumers turn to Amazon.com Inc. for more mundane purchases, visitor numbers are holding up, with 15 million people from 130 countries shopping there annually. Operating profit rose 24 percent in the year ended in January 2017, according to the most recent accounts filed at the U.K.’s Companies House.

While the pound’s fall helps Harrods, owned by the Qatar Investment Authority, it has squeezed mainstream department stores that serve mostly British shoppers and now face higher sourcing costs.

“It is much harder” for the likes of Debenhams Plc and House of Fraser, independent analyst Nick Bubb said by email. “Given their onerous cost base and the strength of online competitors, they will have to shrink hard and fast to survive.”

Harrods’s motto is “all things for all people, everywhere,” but the high-end items and exclusive setting point to a business model aimed at the few who can afford it. House of Fraser’s new owner said he wants to sprinkle a bit of that gold dust.

Luxury Brands

“It is vital that we restore the right level of ongoing relationships with the luxury brands,” Ashley said in a regulatory filing, though he didn’t say how he’d go about it.

House of Fraser and midmarket rivals have failed to focus on the customer experience, according to Harrods managing director Michael Ward.

“Harrods’s retail model is based on an entirely different proposition than other department stores,” Ward said by email.

©2018 Bloomberg L.P.