House of Fraser today became the latest UK retailer to say it would embark on a CVA (company voluntary agreement) as it looks to right size its store estate.
The move is part of a conditional acquisition agreement that will see the department store group’s owner Nanjing Cenbest, part of the Sanpower Group, sell a 51% stake in the business to international retailer C.banner, whose UK operations include Hamleys. C.banner will also invest in new shares in the business in order to provide capital necessary to House of Fraser’s transformation plans.
The transaction, which is subject to shareholder and bondholder approval, is expected to complete by the end of June 2018, as long as a restructuring plan by way of a CVA completes. The move will enable House of Fraser to reduce its store portfolio and "provide the business with an effective platform for future growth." The CVA plan is set to be formally launched at the beginning of June, with store restructuring expected to start next year, if all goes according to plan.
Frank Slevin, chairman of House of Fraser, said: “C.banner’s acquisition of 51% of House of Fraser, together with the new capital and restructuring, represents a step to securing House of Fraser’s long-term future.
"With the support of Nanjing Cenbest and Sanpower, Alex Williamson and his team have made substantial progress on our transformation journey. However, 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.
"C.banner’s investment is a vote of confidence in our prospects. 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. I am all too aware that this creates uncertainty for my colleagues in the business and so we will be transparent with them throughout the process.
"These measures are essential to ensure that House of Fraser remains an iconic department store group for many years to come.”
House of Fraser currently sells through 59 stores and online, turning over £1.3bn a year. It employs more than 6,000 staff, while 11,500 staff work for concessions in its stores. The move comes soon after retailers including New Look and Carpetright have moved into CVAs.
Commenting on the news, Catherine Shuttleworth, CEO at shopper and retail marketing agency Savvy, said: “Another blow to an already battered and bruised high street as House of Fraser enter into a CVA which inevitably will lead to the closure of stores. With 59 high street stores the impact will be keenly felt in geographical areas where high streets are already struggling.
"The deal struck by House of Fraser’s new owners - to inject capital in to a revised estate - is positive news, but money alone will not solve the challenges that House of Fraser faces with a changed consumer and a lack of consumer confidence. Smart thinking and digital delivery will be critical.”
Image courtesy of House of Fraser.