More jobs on the high street have been put at risk as Mike Ashley, the owner of Sports Direct and a swathe of stores under the brand name USC Clothing, has filed a notice of intention to appoint receivers to the struggling fashion chain. A formal notice of intention of this kind typically gives a company up to ten days before it must officially declare company insolvency. The usual outcome is likely to be a creditor voluntary liquidation.
As part of a cost-cutting exercise, Ashley is preparing to axe up to a third of the retailer’s worst-performing 90 stores, a move which has put the jobs of many of the company’s 1,000 staff at risk. This is in addition to around 100 warehouse workers at a USC Clothing site in Dundonald, Ayrshire, who have already been told they are being made redundant, without any reason being given.
The demise of USC Clothing – the noughties brand
Much of the problem at USC Clothing is purported to be an over-reliance on noughties brands, which was also the cause of the troubles at the recently collapsed Bank Fashion. The financial woes at USC Clothing were triggered when fashion brand Diesel demanded the repayment of debts the retailer could not afford to pay.
Diesel then broke off a relationship with the retailer which had stood for 15 years. This co-founded the stores’ earlier snub when sports brand Adidas pulled its Originals range of shoes from all USC stores.
USC Clothing has been blighted by the same cooling of public interest in the mini department store fashion model that has blighted other fashion retailers such as Bank Fashion. Changing high street preferences have also left other Sports Direct-owned fashion brands, such as Goldigga and Firetrap, which were all the rage in the noughties, with a dwindling customer base.
USC Clothing fails to play ball
Diesel and Adidas were keen to sever their ties with USC due to the company’s business model, which is replicated across many other Ashley-owned stores.
Much like Sports Direct, USC Clothing sells very few own-brand items, instead relying on buying clothing from suppliers at hefty discounts of up to 50 percent. These items are then stockpiled and sold over time.
Sports Direct has gone one step further, buying up sports brands such as Dunlop and Donnay before selling products at bargain basement prices. However, this continuing drive to play hard-ball with brands seems to have finally backfired.
The decline of Ashley’s ‘premium lifestyle’ division
In 2011, Sports Direct bought an 80 percent stake in USC Clothing, along with a smaller fashion chain Cruise, for £7million from Mike Ashley’s fellow tycoon Sir Tom Hunter. These stores make up the majority of Sports Direct’s ‘premium lifestyle’ division, along with Republic, which Ashley snapped up after its collapse in 2013.
Unfortunately, it’s not been all plain sailing in this sector, as both USC Clothing and Republic have been hit by falling sales in the six months to 26th October, down 2.8 percent to £99.9million. This is in addition to a loss in earnings before interest, tax, depreciation and amortisation (EBITDA) of £7.8million.
While this performance represented an improvement on the previous year’s loss of £11.9million, it does not bode well for employees who will continue to work in USC’s remaining stores once the cost-cutting measures have taken place.
If you are a retailer concerned about trading whilst insolvent or need advice on restricted cash-flow putting pressure on your ability to trade call 08000 746 757 for immediate help.
Written by: Mike Smith