House of Fraser plans to close stores as new owners look to turn around the department store chain.
House of Fraser confirmed that Chinese retailer C.banner is taking a 51 per cent stake in the firm, shifting control from previous Chinese owner Nanjing Cenbest.
The retailer intends to launch a company voluntary arrangement (CVA) under which it is likely to close some stores and renegotiate rents on others.
House of Fraser did not say how many stores are earmarked for closure.
The retailer currently has 59 stores in the UK and Ireland. There are more than 6,000 House of Fraser employees and 11,500 concession staff.
“There is a need to create a leaner business that better serves the rapidly changing behaviours of a customer base,” said Frank Slevin, chairman of House of Fraser.
“House of Fraser’s future will depend on creating the right portfolio of stores that are the right size and in the right location.”
House of Fraser’s new owner, C.banner, is listed on the Hong Kong stock exchange and owns brands including toy retailer Hamleys.
The deal is expected to complete by the end of June, with Nanjing Cenbest continuing to own a significant minority stake.
Under Nanjing Cenbest’s ownership, there were plans for a big expansion of House of Fraser in China.
However, only one Chinese store was ever opened, in Nanjing itself.
House of Fraser expects to make a formal CVA proposal during June, with a full restructuring in place by early 2019.
A CVA is designed to help a struggling company to pay back a proportion of its debts over time.
Simon Underwood, business recovery partner, at accountancy firm, Menzies LLP, said: “Company voluntary arrangements (CVAs) enable companies facing financial difficulty to restructure their finances so they can continue trading by cutting costs and agreeing voluntary repayment schedules with creditors. However, with a long list of retailers applying for CVAs in recent months, store closures and the potential for increased business rates could send the UK High Street further into a downward spiral.
“Allowing a business to continue trading and its existing management to retain control during the negotiation process, CVAs are often viewed as a more attractive option than other methods of insolvency, such as pre-pack administrations. However, if all struggling retailers start taking this route, 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.
“The recent, high-profile collapse of Toys R Us emphasised that CVAs are not always successful in protecting businesses from entering into administration and total closure. In order to determine whether this strategy is right for them, retailers should ask themselves why they are experiencing financial difficulties. With well-known retail and casual dining brands struggling, the stark message to all businesses with an interest in the High Street is to have a robust plan. Many companies need to act now and consider renegotiating rents with landlords and cutting their costs at an early stage to avoid struggling to repay liabilities further down the line.”