House of Fraser to sell stake to Hamleys owner and close stores
House of Fraser became the latest struggling retailer to confirm that it will close stores yesterday, as part of a deal to sell a stake to the owner of Hamleys.
But employees will have a nail-biting month-long wait to find out which of the 59 stores will be affected.
The department store group, owned by Sanpower’s Nanjing, will propose a company voluntary arrangement (CVA) in June. The restructuring process is expected to be completed in early 2019.
Once the CVA has been approved, a 51 per cent stake will be sold to Chinese fashion conglomerate C. Banner, which also owns toy store Hamleys.
C. Banner has also committed to providing capital which will accelerate transformation plans.
Read more: Poundworld to close as many as 100 stores
House of Fraser’s chairman, Frank Slevin, said it was necessary to create a “leaner business” and that the company’s future depended on reducing the portfolio of stores.
“We also know that if we are to deliver a sustainable, long-term business then we need to make difficult decisions about our underperforming legacy stores,” he said. “I am all too aware that this creates uncertainty for my colleagues in the business and so we will be transparent with them throughout the process.”
Read more: House of Fraser brings in advisers to consider store closures
The move is just the latest in a spate of recent CVAs in the retail sector including Carpetright, New Look, and Toys R Us.
Richard Lim, chief executive of Retail Economics, told City A.M. House of Fraser’s move marked “a continuation of the seismic structural changes we’re seeing in the industry” and that he expected there would be more CVAs to come.
“The cost environment for retailers is very hostile,” he said, citing high rents, business rates, and the national living wage. “The toxic mix of all these costs is really squeezing margins.”
Charlotte Pearce, retail analyst at Globaldata, said that with fresh investment, the brand is “not beyond repair”.
“House of Fraser desperately needs investment to create stores in which it has the confidence to keep stock at full price for longer,” she said.
However, concerns are growing that the current popularity of CVAs could have a negative impact for landlords and the industry as a whole.
Simon Underwood, a business recovery partner at Menzies, warned today that if all struggling retailers use the process, it could “damage the entire High Street irrevocably”.
“As well as perpetuating the ‘bricks-to-clicks’ phenomenon, causing more consumers to abandon the UK High Street, empty stores could result in local councils increasing business rates to make up for inevitable shortfalls in payments,” he explained.