House of Fraser’s plans to close more than half of its stores in a controversial company voluntary arrangement (CVA) will be met with fierce opposition by landlords, Drapers understands.
More from: House of Fraser CVA revealed
On 7 June HoF announced plans to close 31 of its 59 stores, affecting 6,000 staff, in a CVA.
The CVA process is likely be opposed by landlords when it comes to the vote earmarked for 22 June, but it may be pushed through regardless as other creditors back the deal, property and retail experts have told Drapers.
Mark Williams, president of retail property organisation Revo, said: “This CVA is unprecedented. This is a business that is shrinking to a very small core that will be held, and they want to dump the rest. The alternative is an administration, but what they have done here is a wholesale restructuring, not just tinkering around the edges.”
Dan Simms, head of retail agency, south, at property agency Colliers said a CVA of this size was virtually unheard of: “It is a seriously radical proposal and the thing to bear in mind it would be one of the biggest CVAs ever seen in retail property. HoF is planning to close over half of its stores, whereas a conventional CVA may close 15%-20% of stores.”
He added: “[HoF will] never get 75% of landlords signing off on it, which means that if it is to be approved it will be by votes from wider creditors.
“That will highlight the inequality in the system. There is cynicism around how this [CVA] instrument is being used to narrowly target landlords and use wider debtors for the voting. This is going to be very controversial.”
One property expert who advises landlords said: “[HoF] didn’t have a huge amount of landlord support in the run up to the [CVA] decision. The idea of cutting rents didn’t wash so instead they have decided to go for closures. The rent haircut didn’t do it.
“People are sick of CVAs generally but this one feels like it was difficult to justify when they paid £480m for the business in 2014. How can you pay that much to acquire the brand and then suddenly say, ‘It’s not sustainable at any value,’ at the expense of landlords?”
One property agent, which has advised HoF landlords, expressed concern about the viability of the business going forward, even if the CVA is approved.
“If you ask me whether I think HoF will be on the high street in 10 or 20 years’ time, I would say no. They can close as many stores as they like but they need to get the fundamentals of their business right. The problem with department store businesses is that they are capital intensive. It’s easy to take money out but you have to put money in.
“The investor [C Banner] is promising another £70m, which is all well and good to say, but show me the money. What happens if they spend £70m building a couple more stores in China?
“It’s not quite a soap opera but it’s not healthy for a UK high street brand.”
A key part of the proposed CVA was the closure of HoF’s flagship Oxford Street store, which was considered one of the firm’s prize assets.
However, Williams said the store didn’t stand up to the competition from nearby rivals: “Oxford Street is one of the most competitive streets in the world and they are up against the likes of Selfridges and Fenwick close by. The competition is strong and the store is not exciting compared with the others.”
One property expert added that the closure could be welcomed by landlords keen to revamp the unit: “There must be landlords that could support the Oxford Street closure because they would want the building back. It would be a change to completely overhaul it. That represents a real opportunity.”
- Suppliers to House of Fraser have warned of “knock-on effects” of the CVA. Are you affected? Email firstname.lastname@example.org
Landlords to fight House of Fraser’s 'unprecedented' CVA