Sports Direct is a mighty, mysterious beast. The FTSE 100 giant turns over around £3bn, and contains 67 companies within its group. Though it’s publically traded, its founder and ‘executive deputy chairman’ Mike Ashley still owns 55% of its shares, giving him de facto control of the business. Because of this and because of Ashley’s famed reluctance to talk to the media, comparatively little is known of how it’s actually run.
Yesterday, however, some light was shed on the matter. Sports Direct’s chairman Dr Keith Hellawell appeared before the Commons Scottish Affairs Committee to answer MPs’ questions on the closing of a warehouse in Dundonald in January, during the super brief administration of Sports Direct subsidiary USC.
MPs had wanted Mike Ashley himself to appear, but apparently he had other commitments (presumably not washing his hair or watching a Rangers game), leaving former chief constable Hellawell to face their ire in a two-and-a-half hour grilling instead. The unfortunate chairman’s answers were quite revealing, both in terms of how Sports Direct is run and in terms of how USC went into administration.
Be warned though, this may well make you cringe…
Sports Direct’s suppliers don’t like it…
‘We endeavour to sell product to the market as cheap or cheaper than anyone else, and that creates issues for us across the business, particularly with suppliers, who don’t like us selling at a cheap price,’ said Hellawell. Okay, so no surprise there. No one really expected they’d be sending Mike Ashley flowers on Valentine’s Day, did they?
Hellawell did reveal that one of the reasons Sports Direct entered the fashion business a few years ago by buying chains like USC and Republic was to encourage reluctant suppliers to stay. Apparently, however, it had the opposite effect.
‘As soon as we took [USC] over, they said we’re no longer going to supply you. They didn’t all go at once, but a number of them started to leave. The culmination of that was Diesel,’ Hellaway said.
Sometime in the summer, Diesel informed Sports Direct it would no longer be supplying USC from 2015 onwards, which Hellaway said threatened to cause a ‘domino effect’ of other suppliers leaving, which would have left the business ‘worth nothing’.
…and here’s why
Hellawell said that in fashion retail, unlike in supermarkets, the suppliers hold the power, which led to Sports Direct using tactics Conservative MP Simon Revell said belonged to a ‘backstreet outfit’.
‘We withheld a bill from Diesel,’ admitted Hellawell, before an uncomfortable exchange with Revell. ‘We used it as a bargaining chip.’
Revell wasn’t impressed. ‘Were you in breach of contract by withholding payment?’
‘I haven’t seen that specific contract.’
Revell pushed. ‘When you, as chairman of a FTSE 100 company, make a decision to withhold monies you owe to a supplier, presumably you go to someone and ask are we legally entitled to do this?’
Some heavy breathing from Hellawell now. ‘No.’
‘So you were in breach of contract?’
‘So you acted in breach of contract with Diesel in order to bring them to the negotiating table?’
‘Yes.’ By this point Hellawell sounded like he really didn’t want to be there anymore, and it was only 10 minutes in...
It also emerged that Sports Direct had used the same tactic on the landlord of the warehouse that closed in Dundonald. It didn't work in either case. Diesel refused to change its mind, while the warehouse owner ‘blockaded’ Sports Direct from taking out its products. The result of these actions was that Sports Direct called in the administrators.
‘That sounds like a backstreet outfit,’ Revell said. ‘We struggle to understand why a reputational matter like this was completely unknown to you as chairman.’
The right hand didn’t know
Unknown, though, it was. Committee chair Ian Davidson pointed out that, although Hellawell said he didn’t know about the administration until the days leading up to January 12th , when it took place, the administrators Duff and Phelps said they had been in talks with Sports Direct since November.
‘If that is the case I don’t have knowledge of that,’ Hellawell said, defending chief executive Dave Forsey’s right to enter into those negotiations.
Revell joined in soon after. ‘So during the time that you and your board were discussing the problems [at USC] and never mentioning administration, your chief executive was talking to administrators and not mentioning that?’
Here comes the sigh again. ‘Yes.’
‘That sounds not good, would you agree?’
‘It sounds not good if you say it like that,’ Hellawell replied.
Revell was incredulous, asking why Forsey wouldn’t have told him ‘just so you know’.
‘I think with hindsight that would have been helpful,’ Hellawell said.
It emerged that a small group of senior executives – not including the chief finance officer, of course, because there isn’t one – meet regularly to decide on the day-to-day running of the business. This group does include Mike Ashley, who apparently works up to 60 hours a week.
Unsurprisingly, this had MPs wondering where Ashley was, but Hellawell denied he’d refused to appear. The billionaire had responded to requests to appear before the committee by saying he had ‘immovable commitments’ this month.
While Ashley is working his 60 hour weeks and juggling his immovable commitments, 75% of his 19,000 staff are on zero hour contracts. Hellawell defended this controversial practice, saying many of the firm’s staff were students who needed flexibility and that to switch to a permanent staff model could cost jobs.
By the time he left, this FTSE 100 chairman must have felt pretty fed up. The MPs were out for blood. ‘I didn’t realise I was on trial,’ Hellawell said at one point.
Ashley might be worried, then, that should he be forced to break his public silence, he’ll be in for the same treatment. Unless, of course, the small matter of the General Election diverts MPs’ attentions. The Scottish Affairs Committee in particular could look quite different come the next opening of Parliament, should Alex Salmond get his way. Not that SNP MPs are much likelier to be well-disposed to him, given the whole Rangers thing.