House of Fraser has confirmed it is to launch a restructuring plan that will mean a round of store closures as part of a deal which will see the Chinese owner of Hamleys take a major stake.
The struggling department store chain said it would launch a company voluntary arrangement (CVA) in June – after Sky News first revealed last month that it would explore such an option.
There was no confirmation of how many of House of Fraser’s 59 sites would close under the rescue plan, though its chairman said there would have to be “difficult decisions” about underperforming stores within the 169-year-old chain.
The company said: “The reduction of the store portfolio will provide the business with an effective platform for future growth.”
Management at HoF have previously spoken of wanting to cut property costs by 30% – though such savings could be made through rent cuts and space reductions as well as store closures.
The CVA will mean uncertainty for the 6,000 staff who work directly for House of Fraser and 11,500 who work in concessions in its stores.
Launching the plan takes House of Fraser down a similar route to other struggling high street chains such as Carpetright and New Look.
Image: Conditions for high street businesses have deteriorated since Christmas
The mechanism allows retailers to ask creditors to approve store closures and rent reductions.
House of Fraser is to launch the CVA after announcing that C.banner, a Chinese retail business which also owns toy store Hamleys, had agreed a deal to buy a 51% stake in House of Fraser group, which in turn owns 89% of HoF’s UK and Ireland operations.
Just over 10% of the operations are owned by Mike Ashley’s Sports Direct retail empire.
The C.banner deal is set to complete by the end of June and it is hoped that a sale of new shares will raise £70m – with a significant sum to be invested in remaining stores.
However, the ownership agreement is subject to the restructuring, which is expected to conclude in early 2019 if approved by creditors.
House of Fraser group is currently owned by another Chinese company, Nanjing Cenbest, which is part of the Sanpower conglomerate.
The department store’s chairman, Frank Slevin, said there had been progress on a shake-up of the business but more needed to be done “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 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.”
The comments reflected difficulties which have afflicted the wider department store sector including embattled rival Debenhams, as firms face the challenge of a shift to online retail as well as the squeeze on household spending.
Mr Slevin said C.banner’s investment was a “vote of confidence” in House of Fraser’s prospects.
But he added: “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.”
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The measures were bound to create uncertainty for employees but were “essential to ensure that House of Fraser remains an iconic department store group for many years to come,” he said.
The company’s recent trading performance has done little to alleviate concerns over its future. Sales fell 2.9% in its stores and 7.5% online during the crucial Christmas trading period and conditions on the high street have deteriorated since then.