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HoF CVA ‘inevitable’, say industry sources

Retailers, landlords and industry observers have said House of Fraser’s planned company voluntary arrangement (CVA) was “inevitable”, but warned the department store chain needs “serious investment” if it is to turn around successfully.

Hamleys owner C Banner has entered into a conditional agreement with HoF’s parent company, Nanjing Cenbest, to acquire a 51% stake in House of Fraser Group, but the deal is subject to HoF restructuring its store portfolio through a CVA to be launched in June.

Industry insiders expressed little surprise over the announcement, and said many of the retailer’s smaller regional stores were at risk.

“They’ve previously said around 20 stores don’t make a profit – they are the ones under threat,” said one property source.

“HoF has quite a mixed portfolio, I imagine some of the smaller stores will be looked at. Sutton Coldfield is probably earmarked for closure. Do I think they’ll get it through? Absolutely. They anchor a lot of shopping centres, so I can’t believe landlords will object.

“HoF is fundamentally a good business, but it has been severely under-invested in for many years. Some of the stores haven’t been refitted for 10 or 15 years – that’s the challenge. They’ve got to borrow to rejuvenate older stores.”

Jonathan De Mello, head of retail consultancy at property agency Harper Dennis Hobbs, said: “I think the CVA will gain a majority vote, as House of Fraser is an anchor store and major footfall driver, and its presence drives the turnover of retailers trading nearby – and therefore rental growth for landlords. Like many retailers, it is likely that House of Fraser will retain stores in dominant, high-footfall locations such as city centres and large out-of-town malls. It is smaller, regional centres that are likely to bear the brunt of the mooted store closures.”

One supplier agreed: “A lot of the smaller stores are likely to go, places like Hull, some in the north and Scotland – they will want to keep the gems like Guildford and Cheltenham. I can see around 20 shops going. They will be able to make a success of it if the portfolio was more manageable, but they need to invest in their stores.

“The market is very tight. Retailers and landlords need a reality check – only the strong will survive the current climate. Those that are left need to be more visionary.”

One source familiar with the situation said: “I imagine they will want to come out of Grimsby, Wolverhampton and Birmingham – which is a very large store. If they can shed 20 stores then they need further investment in the remaining portfolio to succeed. It feels like they are forcing the landlords’ hands by saying they will get this new investment if the CVA goes through. I would want to know exactly how much investment they will receive, and when.”

He added that coupled with other high-profile CVAs from New Look and Select, and a mooted restructure by Mothercare, the wider high street would suffer as a result of the closures: “The high street is in an impossible situation at the moment. Three or four major players are all pushing for a CVA and the landlords are pushing the other way. Government intervention is needed to get both parties around the table and knock their heads together. We’re heading towards a perfect storm for retailers going bust.”

One department store source agreed: “It will be good for the business to have a slimmer portfolio and to be able to invest in the balance but it’s not good for town centres. It is turning into a social challenge.

”In some parts of the country the number of store closures is incredible and town centres are unrecognisable. Who is likely to take stores that size on? The government needs to intervene and put some real thought into the town centres of the future. Since January the retail landscape has shifted and something has to give.”

One source familiar with the situation said: “[HoF] could be profitable with 30 stores so up to half could go. The CVA is now the easy way out for rretailers, it can’t go on like this. It’s not fair if you are trading well then your rival next door is suddenly paying 50% less rent. There has to be some control introduced. They are holding landlords and concession partners to ransom.”


Readers' comments (1)

  • I think some are missing the point with all of this. Lack of investment was not the problem (though you can never have enough) it was the way House of Fraser was and is run. More money will not solve the fundamental problems they have, which are widespread.

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