Incoming Myer chief executive John King’s former employer House of Fraser has unveiled a plan to launch a company voluntary arrangement (CVA) in the coming months, allowing the ailing business to restructure by closing a raft of stores.
CVAs, which have similarities with voluntary administration processes in Australia, have become popular among UK retailers in recent months as a way for struggling businesses to navigate outstanding lease commitments.
New Look, Carpetright, Toys R Us and Mothercare have all used the mechanism recently in an attempt to turnaround their businesses.
If successful the insolvency process could allow the retailer to settle part or all of its debt and other outstanding commitments with creditors.
As part of the move House of Fraser has secured additional capital to help it turnaround the business, attracting an offer from Hamleys parent C.banner to acquire a 51 per cent stake from Chinese conglomerate Sanpower Group, conditional on a CVA restructure.
The department store retailer has around 59 stores in the UK, a significant portion of which will likely close in the coming months.
chairman Frank Slevin said the company’s future will depend on right sizing its store portfiolio
“House of Fraser’s future will depend on creating the right portfolio of stores that are the right size and in the right location,” he said.
“We also know that if we are to deliver a sustainable, long-term business then we need to make difficult decisions about our under performing legacy stores.”
GlobalData retail analyst Charlotte Pearce said House of Fraser isn’t beyond repair if it manages to secure agreement from landlords and shareholders on a CVA arrangement.
“While CVAs are often only delaying the inevitable, this one does at least come with the promise of a cash injection to invest in the remaining stores, which have been starved of investment in recent years,” she said.
GlobalData’s research indicates that just 16.2 per cent of UK consumers have shopped with House of Fraser in the last year, significantly lower than Debenhams (41.3 per cent) and John Lewis (32 per cent).
“Just 60.1%* of consumers scored House of Fraser between 7 and 10 for range of brands, far lower than Debenhams (72.2%*) and John Lewis (81.9%*), showing that it needs to revamp its own brand and branded offer to attract shoppers,” Pearce said.