Iconic 169-year-old British department store chain, House of Fraser, is to undergo a Company Voluntary Arrangement (CVA) in June 2018 as it seeks to restructure its expensive portfolio.
The retailer operates from 59 outlets in the UK, around 20 of which are thought to be performing well. It currently employs 6,500 staff, with a further 11,500 people working for concessions within its stores.
A CVA enables a retail business to reconfigure expensive lease obligations on high streets with declining footfall, and thereby ease pressure on cashflow. It is not yet known how many stores might be affected by the House of Fraser CVA.
House of Fraser’s Chinese owner, C.banner International Holdings, which also owns specialist toy retailer, Hamley’s, is to buy a 51pc stake in the business from majority shareholders Nanjing Cenbest to support the ailing retailer with a capital injection. Cenbest will retain a significant minority interest in the business.
In a more recent development, sports retailer, Sports Direct, which owns a 11.1 stake in House of Fraser, claims that stakeholders were “denied information” about the proposed CVA and has launched legal proceedings demanding access to corporate plans. Sports Direct does not have a seat on the House of Fraser board, despite its large stake in the company.
The head of strategic investments for Sports Direct, Liam Rowley, said in an interview with the BBC: “Their dealings in China are opaque, and it is blatant that we have been unfairly prejudiced. We have no option other than litigation to protect the interests of Sports Direct and its shareholders.”
A CVA must be approved by three quarters of creditors and a decision on whether this will go ahead for House of Fraser expected in early June. The retailer may also be required to set aside millions of pounds to secure the support of the pension protection fund (PPF), an industry-backed body that bails out troubled schemes. The PPF forced Toys R Us to pledge £9m in additional funding to support its pension scheme before agreeing to back a CVA.
House of Fraser is the latest of a line of retailers, including Debenhams, Mothercare and Selecta to post disappointing results after poor Christmas trading. Selecta has since been rescued via a CVA. Like many retailers they struggled to adapt to a market dominated by discount chains and an explosion in online shopping.
A report by consultancy firm, Deloitte, found that the retail sector has seen the first rise in insolvencies in five years, with larger department stores and multiples bearing the brunt of market challenges.
House of Fraser saw online sales fall by 9.8% in the past year following the launch of a £25mn online platform. Turning online sales around will be key to ensuring a positive future performance for the retailer, which is charged with creating stores where it can hold full price for longer and avoid the premature discounting which ate into its margins.
