House of Fraser has filed proposals for a company voluntary arrangement process, putting 31 stores – including its Oxford Street flagship – at risk of closure.
It plans to reduce its total estate to 28 stores. It operates 59 across the UK and Ireland.
Figures from Radius Data Exchange show this could create up to 3.3m sq ft of empty space, bringing the total space lost on the UK’s high streets in 2018 up to 11m sq ft.
This eclipses the amount relinquished in 2016 when BHS collapsed.
Pending creditor approval, it is anticipated those stores scheduled for closure will remain open until early 2019.
If the process is approved it could affect up to 2,000 jobs and a further 4,000 brand and concession partners.
The department store chain said the proposals are “central to the significant restructuring of the business, without which House of Fraser does not have a viable future”.
The proposals divide its total store count into three categories.
For 16 “category 1” stores, the leases will be retained at current rents. For a further 10 “category 2” stores, the department store will seek reduced rent of up to 75% of current rent.
“For the remaining 31 stores, a reduced rent, equivalent to 30% of current rent, will be paid for seven months before the stores will close.”
As part of the CVA process, the company proposes to relocate its head office in Baker Street, W1, and the Granite House office in Glasgow to new locations.
The company said it has held “constructive initial discussions” with landlords and other key stakeholders.
A consultation will take place over the next 17 days, with a vote scheduled for 22 June.
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House of Fraser needs to secure a restructuring deal to gain a £70m injection from its potential new investor C.Banner International.
The Chinese conglomerate, which owns Hamleys, entered into an agreement earlier this month with House of Fraser’s parent company, Nanjing Cenbest, on the condition that a restructuring deal is done.
Frank Slevin, chairman of House of Fraser, said: “The retail industry is undergoing fundamental change and House of Fraser urgently needs to adapt to this fast-changing landscape in order to give it a future and allow it to thrive.
“Our legacy store estate has created an unsustainable cost base which, without restructuring, presents an existential threat to the business.
“So while closing stores is a very difficult decision, especially given the length of relationship House of Fraser has with all its locations, there should be no doubt it is absolutely necessary if we are to continue to trade and be competitive.”
Chief executive Alex Williamson said: “Today’s announcement is one of the most important in this company’s 169-year history.
“We, as a management team, have a responsibility to take necessary steps to ensure House of Fraser’s survival, which is why we are making these proposals.”
Will Wright and Robert Croxen of KPMG have been appointed as nominees to the process.
EG retail analyst James Child said: “The department store as a concept has been under increasing pressure over the past two decades.
“The internet has replaced the ‘under one roof’ USP that they used to operate.
“Oversized units and overstretched portfolios, combined with being locked into long leases, as well as paying extortionate rents, have unfortunately paved the path for House of Fraser.
“What remains to be seen is if the rest of the 28 stores can work effectively and save them from total collapse.
“Value retailers such as Primark and B&M who have expanded into many ex-BHS units since 2016 may benefit from this new dearth of space, although many of the value retailers are reaching portfolio maturity.
“Leisure operators may see this as an opportunity especially. Equally, we can expect to see subdivision of some of the units in shopping centres to create fit-for-purpose locations for retailers looking to operate from smaller space.”
The controversial insolvency procedure allows retailers to close stores and slash rent bills on others.
However, landlords and lobbyists for insolvency practitioners and restructuring advisers have hit back at the proposals in recent weeks.
Notably, the British Property Federation last month labelled the way it has handled the proposals as “highly insensitive”.
Following the announcement this morning, the trade body has called on the government for an “urgent review” of the insolvency procedure.
Melanie Leech, chief executive of the BPF, said: “The CVA process is intended to be part of a comprehensive business recovery plan.
“Property owners looking after savers’ and pensioners’ money will support businesses that demonstrate this commitment but must protect those pensioners against unfair action that penalises their interests.
“Urgent action is required and we are calling on government today to undertake a review so that we can restore the CVA process to its original purpose.”
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