House of Fraser (HoF), one of the UK’s biggest department store chains, is seeking to slash its rent bill, stoking fears of further casualties on an increasingly embattled high street.
Sky News has learnt that HoF has contacted an undisclosed number of the owners of its 59 UK outlets to ask for substantial rent reductions.
The chain, which is privately owned by Sanpower, a Chinese conglomerate, is understood to have made the “informal” request in recent weeks, although it was unclear on Friday whether it had been communicated to landlords before or after its Boxing Day sale got underway.
HoF is expected to publish details of its Christmas trading performance next week, when rival chains including Marks & Spencer and the John Lewis Partnership are also due to update investors and analysts.
While Next, the clothing retailer, kicked off the flurry of festive trading statements with news on Tuesday, it was quickly overshadowed by a drastic profit warning from Debenhams, one of HoF’s biggest competitors.
A seasonal cold snap aided fashion chains but appears to have done little for general merchandise retailers amid cost pressures arising from increasing business rates,
In a statement issued to Sky News on Friday evening, a HoF spokeswoman said: “We can confirm that we have contacted some of our landlords asking for their support as we drive forward with our transformation programme.”
The state of HoF’s finances has been the subject of speculation for months, and was not aided by Moody’s, the ratings agency, which described the chain as “a very high credit risk” last month.
That analysis partly explains why the company’s bonds have been trading at around 90p in the pound, while The Times reported on Boxing Day that hedge funds have placed big bets on the value of listed retailers falling.
The precise details of HoF’s request to landlords, which was described by one source as “informal”, was unclear on Friday.
HoF declined to provide additional information about the revised terms it was seeking, or how many landlords or stores it affected.
One industry source described it as “a backdoor CVA” – a reference to the formal court process through which retailers can secure rent reductions and shut loss-making stores.
Toys R Us, the toy retailer, won approval for a CVA days before Christmas with landlords and other creditors agreeing to a plan that will see roughly a quarter of its British stores closing.
Next and M&S are among other retailers who have grappled with their cost-bases by seeking rent reduction.
Some analysts expect HoF to draw up plans for a number of store closures in the coming months.
HoF announced in September that it had been handed an additional £15m of funding by Sanpower, with a further £10m committed by it towards a new distribution centre.
Alex Williamson, who was recruited as the chain’s chief executive from the Goodwood Estate last year, insisted in the autumn that he had “high expectations” for HoF’s turnaround.
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“My observations after a few weeks are that since Sanpower acquired the business in 2014 the primary focus has been on stabilising an enterprise that had been starved of investment for many years,” he said.
HoF is one of the high street’s biggest employers, with a direct workforce of 5000 and 12,500 concession staff.
Source: Sky