October 25, 2018 / 7:19 AM / in 25 days

ScS Group abandons tie-up with UK's House of Fraser after Ashley buyout

(Reuters) - ScS Group (SCSS.L) said on Thursday it would stop selling its sofas and carpets at House of Fraser stores from January, saying the partnership had ceased to be beneficial since billionaire Mike Ashley bought the collapsed department store group.

A man leaves a House of Fraser store in Bristol, Britain, August 10, 2018. REUTERS/Hannah McKay/File Photo

Sports Direct (SPD.L), the British sportswear retailer controlled by Ashley, snapped up House of Fraser and its 58 stores from administrators for 90 million pounds ($116 million) in August.

House of Fraser’s collapse followed months of upheaval at the company, falling sales and a now-abandoned restructuring plan that would have seen nearly half of its stores close.

ScS Group, which started trading in Sunderland around the 1890s as a family-owned home furnishings store, said orders at its 27 concessions within House of Fraser stores had halved in the 12 weeks ended Oct. 20.

“Given the recent change of ownership of House of Fraser, both companies came to a mutual decision to end the relationship. For ScS, the partnership was no longer beneficial given the developments in House of Fraser over the last few months,” an ScS spokeswoman said.

A House of Fraser spokesman could not be immediately reached for comment.

British store chains have been hard hit by competition from Amazon (AMZN.O) and other online retailers, and a rise in costs stemming from the pound’s Brexit-induced weakness has contributed to the collapse of several major names this year.

Struggling department store chain Debenhams (DEB.L) said on Thursday it was closing 50 of its underperforming stores, putting about 4,000 jobs at risk, after it reported a record full-year loss of nearly 500 million pounds ($645 million).

ScS Group said it was looking to re-deploy affected employees elsewhere in the firm where possible.

It said the House of Fraser concessions accounted for just 2.7 percent of its order intake in the 12 weeks to Oct. 20.

“Coming out of the concessions will have a small negative effect, but this will be counteracted by strong performance in the core ScS business which has traded strongly so far this year,” a source with knowledge of the matter said.

The board’s guidance was that the business would continue to perform in line with market expectations for the full year, the source said.

Shares in ScS were down 1.4 percent at 218.8 pence at 0943 GMT, while Sports Direct was trading 1.3 percent higher at 315.7 pence.

British luxury bag maker Mulberry (MUL.L), which operates 21 concessions in House of Fraser stores, said in August it would take a 3 million pound hit from the chain’s collapse.

ScS, which stands for “Sofa Carpet Specialist”, operates more than 100 stores in Britain and has an online presence and employs 2,000 people.

Sports Direct owner Ashley, who also owns English Premier League soccer club Newcastle United, has promised to transform House of Fraser “into the Harrods of the High Street”.

A number of sector analysts, however, have cast doubt on the wisdom of the deal, which follows a disastrous investment in Debenhams by the sporting goods chain.

($1 = 0.7743 pounds)

Reporting by Karina Dsouza and Noor Zainab Hussain in Bengaluru; Editing by Gopakumar Warrier, Amrutha Gayathri; Editing by Adrian Croft

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