House of Fraser is to close all of its intu-owned department stores after the shopping centre owner refused to grant rent reductions.
The four stores at intu Metrocentre in Gateshead, intu Chapelfield in Norwich, intu Lakeside in Essex and intu Victoria Centre in Nottingham will shut in the new year. The move follows plans announced in September to close four other flagship House of Fraser stores.
The timing of intu’s rejection of rental reductions could be seen as a move to shore up the intu portfolio and strengthen its value in the face of a proposed takeover by a consortium comprised of John Whittaker’s Peel Group, Olayan Group and Brookfield Property Group. This week the consortium was granted an additional extension to lodge an offer.
Previously 31 House of Fraser stores had been due to close under a company voluntary arrangement with lenders, until Sports Direct owner Mike Ashley of swept in at the eleventh-hour to save the high street chain.
A line in the sand?
The refusal by intu to negotiate rental revenues downward to a level acceptable to Ashley has set a benchmark for the UK’s leading shopping centre landlords. If it had acceded to House of Fraser’s demands, it would have handed retailers across the spectrum the advantage when it came to asking for lower rents – something that has been fiercely debated by scheme owners this year as the UK’s retail crisis continues.
Ashley has suggested that the House of Fraser closures are down to greedy landlords, in direct retaliation to its rejection of restructuring rental agreements.
What is clear from this rejection from intu is that Ashley is dealing directly with landlords across their entire estates, as opposed to approaching each asset individually or by region. This in itself could mar relationships and sour renewals with his other retail chains, such as Sports Direct and Debenhams.
What next?
Responding to House of Fraser’s announcement, intu said it was “excited about the opportunity to re-engineer and relet this underperforming space to new and exciting alternatives”.
Which begs the question – who will stand to benefit from the exits?
Metrocentre and Chapelfield already have Sports Direct stores, and with a soured relationship already, it is unlikely that it will be taking additional space.
Alternatively, intu may find that, as with many former BHS sites, there will be plenty of takers. The big fashion brands like Primark are still actively seeking space, and there is always the opportunity to subdivide stores and introduce leisure and experience ventures too.
According to Radius Data Exchange figures, along with the latest stores that have been earmarked for closure, House of Fraser has now closed more than 1m sq ft of prime retail space.
With intu setting the precedent, we could come to see many more House of Fraser closures announced before the end of the year as Ashley goes into battle with the rest of the leading shopping centre landlords.
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