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House of Fraser’s tough terms defy credit crunch

House of Fraser’s strategy to move upmarket and squeeze suppliers has helped it to defy the credit crunch and put it firmly on track to post profits in excess of £75 million for this financial year – well ahead of management’s internal targets.

The department store chain, which was bought by a Baugur-led consortium in October 2006, is also understood to be finalising its accounts for the year ended January 31 2007, which will show profits well ahead of targets and far in excess of the £27.3m profit it achieved in its last year as a public company in 2005/06.

Sources close to the business said its strategy to shift towards the premium end of the high street with upmarket labels and improved stores had paid off, and that although trading had been tough throughout May, overall spring sales were pleasing.

This week the business added to its fashion credentials with the signing of an exclusive deal with Ralph Lauren. The designer brand will supply House of Fraser exclusively in the UK with its Lauren womenswear brand.The range will debut for spring 09 in 25 stores.

A source close to HoF said: “Everything has improved, including products. All the strategies that Don McCarthy [chairman] and John King [chief executive] said they would implement when they took over are landing now and that’s making the difference.”

Rival retailers said they were impressed with HoF’s achievements but suppliers were outraged by the figures, claiming that tougher supplier terms had hammered their own businesses and lined Baugur’s pockets. McCarthy and King introduced controversial new terms last autumn to help pay for the £50m overhaul of HoF.

One competitor said: “There’s been some clever cost cutting and supplier negotiations.”

A supplier said: “The business is on plan performance-wise. But it ought to be, given they’ve taken £50m of cuts from the supply base.”
One womenswear concessionaire added: “New terms have contributed to increased margins for HoF.”

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