House of Fraser to close stores as part of restructuring deal

House of Fraser is to close stores, potentially putting hundreds of jobs at risk, as part of a formal restructuring deal under which the Chinese owner of Hamleys will take control of the ailing department store chain.

C.banner is buying a 51% stake in the parent group of House of Fraser from its current owner Nanjing Cenbest, part of the Sanpower conglomerate, which will retain a minority stake.

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The deal is subject to House of Fraser closing an unknown number of its 59 stores and renegotiating rents with landlords through a company voluntary arrangement, an insolvency process known as a CVA which is expected to be launched in June.

Industry experts suggested House of Fraser would have to consider closing at least 20 sites, putting hundreds of jobs at risk. The group has been negotiating with landlords as part of plans to reduce its floorspace by 30% by slimming down its outlets. It is understood that deals have been struck to downsize stores in a number of cities including Plymouth.

Quick guide

The state of UK retail’s ill-health

Retailers that have gone bust 2017-18

Toys R Us: 180 stores employing 3,000 staff, collapsed 28 February. Owes £15m in VAT, due by 1 March.

Maplin: 200 electronics and gadget stores, founded 1972, also failed on 28 February.

Warren Evans: bedmaker went into administration earlier in February.

East: fashion brand with nearly 50 outlets folded in January.

Juice Corp: business behind brands including Elizabeth Emanuel and Joe Bloggs went under in January.

Multiyork: furniture chain with 50 stores went into administration in November.

Feather & Black: bedroom furniture and bedding specialist with 25 outlets fell into administration in November.

Retailers under pressure

New Look has debts of more than £1bn and has lost some of its credit insurance cover, which protects suppliers if a retailer goes bust. In the 10 months to Christmas, sales fell 11% and losses hit £123m. The company intends to close 60 stores and change its fashion ranges, but faces a struggle to win back young shoppers.

House of Fraser’s Chinese owner, Sanpower, had to stump up £25m to see the store through Christmas and its debt is rated as junk. The retailer is attempting to reduce the size of its stores by 30% and has asked landlords to cut rents.

Debenhams, a 178-store chain that is more than 200 years old, is axing one in four of its managers and considering closures to cut costs. It has warned that profits have been hit by lower than expected sales, with profit margins also down as a result of having to cut prices to match rivals.

Photograph: Tony Margiocchi / Barcroft Images/Barcroft Media

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The 168-year-old department store chain employs 5,000 people directly and a further 12,500 people work in concessions for fashion brands.

The likely closure of a number of large stores will be a major blow to high streets reeling from the collapse of Toys R Us and Maplin and the closures of 60 New Look stores under a rescue restructure. Carpetright plans to shut 92 stores; Mothercare is expected to close dozens of outlets as it battles for survival.

House of Fraser said the restructuring would “provide the business with an effective platform for future growth”.

It said the deal with C.banner would result in a “significant capital injection” on top of £25m of cash pumped into the company by shareholders since March.

Frank Slevin, House of Fraser chairman, said C.banner’s investment was “a vote of confidence in our prospects”, adding.: “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.”

Slevin said the management team led by Alex Williamson had made “substantial progress” on a turnaround, but added: “We need to go further and faster if we are to confront the seismic shifts in the retail industry. There is a need to create a leaner business that better serves the rapidly changing behaviours of a customer base which increasingly shops channel agnostically.

“House of Fraser’s future will depend on creating the right portfolio of stores that are the right size and in the right location.”