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House of Fraser CVA: suppliers relieved while landlords fume

The retail industry expressed a mix of emotions following the approval of House of Fraser’s company voluntary arrangement (CVA) today (22 June). Many suppliers breathed a sigh of relief, but some landlords are understood to be considering legal action against the department store chain.

House of Fraser creditors approved the retailer’s CVA proposals, which will result in the closure of up to 31 stores and the loss of up to 6,000 jobs. For a CVA to pass, a total of 75% or more of creditors must vote in favour.

One concession partner told Drapers: “I’m certainly relieved! Without this tail of unprofitable stores, there’s a great opportunity for the business to redefine itself in a very challenging and competitive retail space. I really look forward to hearing the specifics of how this will be achieved.

“On product, there are clear plans to look at the brand mix and make it more exciting, which is absolutely right. It’s also right to cull most of the house brands that don’t mean anything to the customer.”

He added: “I would be cautious about introducing too many young or expensive brands too soon, as there is a danger of alienating the existing House of Fraser customer. The other essential is making the online experience best in class. This work has started but there is still some way to go.”

One womenswear supplier for the department store chain said: “The CVA result was certainly the most positive outcome we could hope for today, although it clearly has a significant impact on all stakeholders in those stores that are closing. Our initial focus will be on looking for local market solutions to minimise this impact, most crucially for our affected store teams, but also for our affected concession customers.

“Alex [Williamson, CEO] has approached this process with considerable dignity, and has articulated a clear vision for taking House of Fraser forward. We are supportive of the plans he has set out and look forward to continuing to build upon our existing brand partnerships.”

Another supplier said: “We voted yes as the alternative is worse. I am going to see if they stop discounting. [If not], I’ll serve notice on them.”

The CVA terms were a condition of the proposed purchase of a 51% stake in the company by Chinese fashion conglomerate C Banner, which HoF said would introduce “significant new capital”.

Another supplier said the future of the retailer depended on the new investment: “We now need C Banner to deliver and complete the deal in August. Then we will see [if the business will survive].”

Retail analyst Nick Bubb said he was surprised the HoF votes passed, and suspected landlords would raise a legal challenge: “It seems crazy that the landlords didn’t have enough votes to stop the CVA, and there may yet be a legal challenge. So HoF should keep the champagne on ice.”

One industry adviser said: “It is too early to say whether the restructure will work. New Look still has massive problems despite its CVA. However, other retailers, such as Carpetright, have turned things around. The CVAs will keep coming. Until one fails [to go through] people, will try to do them.”

Mark Williams, president of shopping centre body Revo, said landlords have little faith in legislation as it stands, as the CVA was able to proceed despite “fierce” opposition: “Landlords alone – many of which are pension funds and local authorities – are being made to pay for the mistakes of the business owners, and the government’s failure to reform the business rates system. The impact will be felt up and down the UK in town centres and on high streets.

“This apparent ease with which some retailers are exiting leases entered into in good faith not only deters companies from investing in our town centres, it fundamentally undermines the UK legal system, where contract is sacrosanct.

“Action must be taken now, and we have written to the housing, communities and local government select committee, urging it to scrutinise the misuse of CVAs, holding retailers and their advisers to account by calling them to give evidence in front of this committee’s MPs.”

Dan Simms, co-head of retail agency at real estate services company Colliers International, said: “I think it is, again, showing that the CVAs are narrowly property focused. But the inequality in the voting system is shown sharply in this instance.

“There are all sorts of things mixed in this. The finances at HoF are very opaque – the transfer of ownership is hard to understand. How can a company be at risk of immediate failure but also be on the brink of a sale with £70m [of funding promised]?

“It is a sector that requires investment, and ongoing investment.”

Landlords now have a 28-day window to consider whether to make a legal challenge.

 

 

 

 

 

Readers' comments (1)

  • darren hoggett

    Anyone who thinks HOF will be significantly different after this announcement are going to be disappointed. For my money, it will still be incompetence, but on a smaller scale. They simply are not a good outfit.

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