Frasers Group, the retail business founded by billionaire Mike Ashley, has acquired Harvey Nichols, pulling the struggling luxury department store back from the brink of insolvency.

The group, which also owns Sports Direct and Flannels, has bought all of the chain’s stores, excluding the Dublin site, from FTI Consulting through a pre-pack administration process, according to a stock exchange announcement. The deal also covers the group’s online business and its existing stock. A pre-pack administration allows a distressed company’s assets to be sold to a buyer lined up before formal insolvency proceedings begin, enabling the business to keep trading while typically leaving unsecured creditors of the failed entity with little or no return.

The purchase marks the latest step in Frasers’ push into luxury fashion as the company expands beyond its roots in bargain sportswear. Frasers prevailed over rival bidders in the auction process, including FTSE 100 retail giant Next.

The transaction secures the jobs of more than 1,000 employees, although Harvey Nichols employs around 1,200 people in total, indicating that a number of job losses will be triggered. The future of the Dublin store, which was excluded from the sale, also remains unresolved.

Frasers said it will need to commit to “significant restructuring” of the department store group, which has posted five successive years of losses after succumbing to intense competition from rivals Harrods and Selfridges. The rescue extends a wider shake-out of British department store retailing, which has seen Debenhams and the Topshop owner Arcadia both collapse into administration in 2020. It also mirrors the deal that shaped Frasers itself: Ashley bought House of Fraser out of administration for £90m in 2018, an acquisition that later gave the group its name.

Department store in ‘death spiral’

Ahead of the deal, Ashley said Harvey Nichols — which soared to fame through its association with the 1990s sitcom Absolutely Fabulous — had fallen into a “death spiral”. He told the Financial Times that he expected the chain to be sold for less than £40m.

“I don’t think I’ll be writing a huge cheque, because you’ve got to think about the future losses,” he had said.

Earlier this week, directors of the Knightsbridge-headquartered business warned that Harvey Nichols would collapse if it did not find a buyer or secure emergency funding.

Announcing the deal on Thursday, Frasers chief executive Michael Murray said: “Harvey Nichols is an iconic British institution with significant potential, but it is clear meaningful change is needed.

“The turnaround will require tough choices, and we are prepared to make those decisions, even if that means a smaller business in the near term, to create a stronger and more sustainable Harvey Nichols for the long term.”

Frasers in luxury push

Frasers has made a number of plays for luxury brands in recent years, including a failed bid for control of upmarket bagmaker Mulberry.

Last month, the group tabled a £1.7bn bid for German fashion house Hugo Boss. Frasers later increased its stake in the firm to 37 per cent, triggering a mandatory offer for all of the shares it does not already own. Hugo Boss has urged its investors to reject the bid.

Frasers said its acquisition of Harvey Nichols will build on the group’s “elevation strategy, strengthening its luxury positioning”.

Julia Goddard, chief executive of Harvey Nichols, said: “Today marks an important milestone for Harvey Nichols and provides a strong platform for the next phase of the business’s evolution under the ownership of Frasers Group.

“Over the past year, we have made significant progress in repositioning this iconic business, investing in our flagship store, broadening our customer proposition, and strengthening the brand DNA.”