Shares in Sports Direct – now renamed Frasers (FRAS) – jumped by 30 per cent after its half-year numbers revealed the beginnings of a turnaround for House of Fraser, which it bought out of administration in August 2018. But within these results, chief executive Mike Ashley called on the government to take action on business rates “before it really does become too late”.
Mr Ashley argues that business rates – rent-based taxes paid on non-domestic property – are killing the high street. Indeed, these rates have become a significant bone of contention for physical retailers, who face a disproportionate burden when compared with online retailers or other sectors of the economy.
The Conservative party pledged to cut business rates as part of its election manifesto, and carry out a “fundamental review of the system”.
The Centre for Retail Research said that bricks-and-mortar retailers paid £7.17bn in business rates in 2018-19, equivalent to 2.3 per cent of their retail sales. By contrast, online retailers paid £457m, or 0.6 per cent of their sales. Mr Ashley has previously suggested introducing an “internet sales tax” on groups that generate 20 per cent or more of their sales online.
In particular, Mr Ashley is calling for changes to transitional relief, which limits on how much a business rates bill can change following annual revaluation, arguing it “punishes the larger stores”. Stores occupying the most valuable properties have the highest limit set on rate increases and the lowest on decreases.
“Larger stores bring the footfall to the high streets, which benefits all businesses on those high streets,” he said. “Therefore it would be fairer and more advantageous to all businesses whether directly or indirectly, for there to be a single approach to tapering relief, regardless of a property’s size.”
Frasers (or Sports Direct) is a big investor in other bricks-and-mortar retailers. In the six-month period just reported, it bought clothing brand Jack Wills out of administration and took control of video games retailer Game Digital. Mr Ashley has said that the latter’s e-sports offering could prove an effective way to combat declining footfall on the high street and in shopping centres.
The sportswear retailer’s performance had been marred in recent times by its aforementioned purchase of House of Fraser – but management said it was beginning to see “the green shoots of recovery” here after bringing the business's support functions such as IT and logistics in-house. However, while the group noted that it was doing “as much as we can to realistically save as many jobs and stores as possible”, it expects to close shops in the coming year.
The group is in the process of trying to “elevate” its retail offering, moving from the discount one it has previously relied on to a more experience-focused, luxury sportswear offering. The strategy has struggled in the past, with the group having noted "scepticism" from the third-party brands whose exclusive product lines are crucial to its success. Sales were down 6.4 per cent on a constant-currency basis in the six months to October, due to ongoing work on the elevation strategy, but it is expected to complete this financial year.
Jonathan Pritchard, an analyst at Peel Hunt, queried whether the group should be moving away from its core sports retail business. "The best part of 80 per cent of the profit comes from the Sports Direct business, but suddenly it's all about the other 20 per cent," he said.
