MarketLine Blog

Sports Direct: Working conditions scandal fallout must be managed to minimize damage

Recent revelations about Sports Direct’s working practices have been largely made via exposé reporting from The Guardian. Secret filming in the company’s Shirebrook warehouse led to claims of a culture of fear, pay of less than the national minimum wage, unpaid after-hours work, and questionable punitive practices. This was then followed by written reporting and interviews with workers, both from the warehouse and from stores. Although terminology like ‘Victorian workhouse’ and ‘Gulag’ is sensationalist and unwarranted, Sports Direct was forced to respond to the claims in a bid to limit the reputational damage caused by the revelations. Furthermore, back payments to underpaid workers and fines are likely to be demanded, bringing a large financial impact that the company could do without at a time of disappointing profit performance and missed targets.

Following the outcry, Ashley was summoned to appear before MPs in Westminster to respond to the criticisms and admitted a number of failings. The billionaire admitted that Sports Direct had effectively paid workers less than the minimum wage because they were held back at the end of their shift and searched by security before leaving the company’s warehouse, a serious breach of employment law that could actually (although it is unlikely) see Ashley disbarred from being a company director. He has pledged to look into many other issues raised, some of which he stated he was not aware of.

Reputational damage has been sustained and cannot be undone, but the company’s management must move to reduce its impact and rebuild bridges of trust with consumers. Ashley’s admissions in Westminster and apparent willingness to do something about the problems bode well and although significant financial damage will be done by necessary back payments and fines, Sports Direct remains a business that can continue to grow and remain a major player for years to come.

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