House of Fraser suppliers have largely welcomed plans to rebrand 31 of its branches as a premium chain, but landlords are likely to play hard ball in the proposed rent break negotiations.
HoF is planning to change 31 stores into a premium chain under the Frasers name over the next five years, starting with five in 2020.
The new stores will be modelled on luxury department store chain Flannels, which is also owned by Sports Direct. The chain will target customers around the age of 30 and will have pop-up concessions for new brands, as well as stocking high-end brands including Gucci and Paul Smith.
The Frasers stores will open on the sites of existing HoF units and on some new sites, including one in Liverpool that is currently under development.
The group is preparing to invest millions into the chain, in return for a three-year rent-free period.
Sports Direct Group’s head of elevation, Mike Murray, told Drapers: “Frasers is far from a rebrand, it’s a complete reimagination. Discussions [with brands] have all been extremely positive – with both existing brands, who remain important to us, and new ones alike.
“Frasers and Flannels work in perfect synergy with each other. A Flannels concession will sit within most regional Frasers stores, showcasing an edited selection of the most luxury brands offered across the group.”
Several HoF suppliers welcomed the plans.
“[Sports Direct boss] Mike Ashley said he’d create a Harrods of the high street,” said one menswear supplier. “He’s a very shrewd businessman, with the money, resources and determination to prove everyone wrong.
“The move does run the risk of House of Fraser losing its identity, but it’s been in a sorry decline over the last few years and needs a change. At a time when retail is facing difficulties, he’s the only person trying to make a go of it.”
One footwear supplier agreed: “The majority of the high street is mid-market and there are very few ‘luxury’ chains out there. Strategically it’s smart because the bottom end of the market is working well, such as Primark, and so is the premium end, such as Selfridges. The bit in the middle is squeezed.”
However, another supplier questioned the chain’s viability in today’s market: “I don’t see premium brands wanting to go into HoF. Mike already has plans to roll out Flannels to target consumers looking for something above mid-market brands, and then true luxury sits in Selfridges and Harrods, so where does Fraser fit in?
“HoF should get back to offering accessible brands, offering good value for money, anchored with decent service, particularly for second and third cities around the UK.”
Meanwhile, property sources told Drapers that landlords will be highly resistant to the proposed three-year rent breaks.
“Landlords will be very reluctant to do a complete rent break,” one source said. “They may give [Ashley] a drop in rent, however, they have other profitable possibilities for those properties: to downsize them or reposition them.”
Another property source agreed: “Landlords will engage with him and negotiate but I doubt he will get all the terms on those. Each case will depend on a number of things, including when the lease is due to expire, when a potential rent break ends and what the basis for rent reviews is.”
There are additional fears that the remaining 19 stores in HoF’s portfolio may face closure.
One source said: “The understanding was that [Ashley] earmarked around 28 stores to keep open profitably. The 31 stores are definitely close to the number he saw as having a future, but the rest to close.”
House of Fraser confirmed the redevelopment plans but declined to comment further.