On the face of it, the story of Mike Ashley and his Sports Direct empire is, while not exactly a fairy tale rags to riches tome, certainly a story of the success of the entrepreneurial spirit. However, recent years have brought into question his business practices and he has recently been ordered to pay £1 million that was owed to his workers but which was kept from them. Gudrun Limbrick asks “where did it all go wrong?”
Mike Ashley reportedly had an unassuming and relatively modest upbringing in the home counties. He left school when he was 16. Two years later, aged 18, his family gave him a loan of £10,000 with which he opened his first sports goods shop in Derbyshire. Three decades or so later, Sports Direct is the biggest sports goods retailer in the UK (although the shops do not limit themselves to sports goods alone) and he not only has a share in Rangers Football Club, but also owns Newcastle United. His personal wealth is estimated to be £1.5 billion. It is a remarkable tale.
Walking into one of the 670+ Sports Direct stores, it is easy to see the appeal of the brand. Shops are piled high with relatively low-priced big name goods. Some of these big names are now owned by the business himself — Lonsdale, Donnay and Karrimore, for example. This variation on the “pile ‘em high, sell ‘em cheap” approach is no doubt popular with customers and their wallets but for the company itself is surely characterised by the combination of low prices and low margins — a relatively risky business model. Get it right and, as Mike Ashley has proven, the rewards can be very high indeed. The secret to success is to keep a tight hold on the outgoings. What Sports Direct did is perhaps to keep too tight a hold.
Any company owner knows all too well that difficult decisions sometimes have to be made in order to get profitability and that success is a product of keeping costs as low as possible while still acting within the law and with one eye on the welfare, wellbeing and productivity of the workforce. If we asked for a show of hands to indicate a perfect company, we probably would see too many. Some corners occasionally have to be cut in order to get through tough times or in order to rise to the challenge of new opportunities. Sports Direct acts as a warning not to let these bad practices get out of hand, not just for the sake of the workforce, but for the sake of the company itself.
Problems started to come to the attention of some key institutions. Unite, the largest trade union in the UK, reported concerns about working conditions in the company’s Shirebrook depot in Nottinghamshire. In 2015, the Guardian newspaper ran its own undercover investigation into minimum wage legislation contraventions. The BBC also launched an investigation into the company. There followed an investigation by HM Revenue & Customs (HMRC) and the Business, Innovation and Skills Committee with Mike Ashley himself questioned by Members of Parliament about his business and his part in, or knowledge of, certain practices. Many column inches of media reports were filled with the news of these investigations and their findings. Former workers found themselves publicly giving their side of the story through the mainstream media and stories spread through social media. It is hard to imagine what the mood, day to day in the warehouses and shops must have been through these days of investigation and revelation.
The following is a list of issues reported as having been carried out by Sports Direct.
Workers were subject to lengthy searches at the end of their working day for which they were not paid.
Workers were docked 15 minutes of pay if they were late just one minute. It is this issue and the one above which meant that many members of staff were effectively paid a rate of about £6.50, below the minimum wage of £6.70.
A woman was said to have given birth in a toilet in the warehouse as she feared taking sick leave.
There were allegations of permanent contracts being promised in return for sexual favours.
Workers without a bank account were said to have been given their pay on prepaid debit cards which incurred a series of fees.
The BBC report found that 76 ambulances or paramedic cars were despatched to the distribution centre’s postcode between January 2013 and December 2014, with 36 cases classed as “life threatening”, including chest pains, breathing problems, convulsions and strokes. Some employees were reported as saying that they were reluctant to call in sick in case they were penalised for it.
Some workers reported that when they returned from maternity leave they were transferred onto zero-hours contracts and so lost benefits and security.
Bowing to the pressure put on the company from the myriad different sources — including press, Government, Unite and the general public — Mike Ashley admitted some wrongdoings. In June 2016, he admitted that the company had broken the law by failing to pay staff the National Minimum Wage.
The company has been instructed to give its staff back pay owed to them going back to 2012. This amounts to a payment of about £1 million with some individual staff members reportedly due £1000. Additionally, the company and the employment agencies it used are facing fines of up to £2 million imposed by the Department for Business, Energy and Industrial Strategy.
However, this is by no means the end of the story. It has been reported that the scope of the HMRC investigation will be broadened to incorporate retail staff as well as warehouse staff. There are around 13,000 retail staff so the implications of this move are potentially enormous. The report by the Business, Innovation and Skills Committee found that the working practices of Sports Direct “are closer to that of a Victorian workhouse than that of a modern, reputable High Street retailer”. The Investor Forum, representing 27% of Sports Direct’s independent shareholders, has publicly indicated that there are concerns about the company and what were termed “governance failings”, and negative stories concerning Sports Direct remain very much a feature of the media.
Sports Direct, presumably, did not set out to deliberately treat its workforce illegally or with malice. However, as belts were tightened and the need to keep productivity high and costs low, bad practices infiltrated the business. Once the wheels of malpractice are set in motion, they only gather speed and that is how Sports Direct finds itself in its current predicament. The eyes of the world are now on the business and, it is hoped, workers who experience problems, will now feel empowered to blow the whistle. I am sure that life will never be the same for Sports Direct. Tom Watson, Deputy Leader of the Labour Party, said that he welcomed the fine imposed on Sports Direct as it sends “a clear signal to other rogue employers”. This may well be the case, but the story of Sports Direct also sends a message to those of us who are not rogue to have a look at our own practices to ensure that there is no accidental “slippage” into wrongdoing as we strive for profitability.
Last reviewed 12 January 2017