HOF stores axed as High Street posts worst sales for a decade
● House of Fraser shuts 31 outlets as it becomes latest high-profile victim
House of Fraser, the department store chain founded in Glasgow almost 170 years ago, is set to shut 31 shops – including its Edinburgh West End branch – following the high street’s worst May for 12 years.
A total of 2,000 direct jobs will be lost at the chain – as well as about 4,000 brand and concession roles, as part of a rescue package to save the iconic brand – including 127 roles at the store in the Scottish capital.
The firm said the proposals include a Company Voluntary Arrangement (CVA), which ringfences the firm from creditors to allow it to pay back debts. It has to be approved by 75 per cent of shareholders.
The announcement came as new figures revealed that the high street has recorded its worst year-on-year May performance for 12 years despite the Royal Wedding, warm weather and two bank holidays. Sales were down 2.2 per cent on May last year, making it eight months since in-store like-for-like sales have shown growth of 1 per cent or more, according to BDO’S High Street Sales Tracker.
Yesterday’s announcement is the latest in a long line of retail troubles, which have seen the collapse of
companies including Toys R Us and Maplin, and a number of other firms enter into rescue deals and a programme of store closures.
House of Fraser’s second Edinburgh outlet – the historic Jenners branch, which the company acquired in 2005 – is to remain open, as will its two other Scottish stores in Glasgow and Loch Lomond.
It said the shops earmarked for closure would remain open until early 2019.
The Scotsman revealed in January that Edinburghbased firm Parabola had bought the site of the House of Fraser store at Edinburgh’s West End. Agents handling the sale said it had gone for “significantly in excess” of its £13.7 million price tag. Parabola described the acquisition as a “strategic purchase”.
House of Fraser said it also plans to relocate its Granite House office in Glasgow and its London head office to help slash costs.
The company’s restructuring proposals were raised at First Minister’s Questions in Holyrood yesterday, when Nicola Sturgeon said the Scottish Government’s Partnership Action for Continuing Employment (PACE) team, which responds to redundancy situations, would step in to offer support to staff.
Retail experts warned that changing consumer habits and government policy changes, such as the introduction of the Living Wage, have affected retail chains.
David Lonsdale, director of the Scottish Retail Consortium, said: “This is further evidence of how the retail industry is going through a period of profound transformation driven by changes in shopping habits, weak growth in wages, and rising public policyinduced costs. This is upending many retail business models, and that can be painful for the firms involved and for their staff.”
House of Fraser said it has already informed staff set to be affected by the plans, and was committed to “working with all those affected openly and with sensitivity over the months ahead”.
Shoppers in Edinburgh yesterday blamed changing shopping habits for the demise.
Alison Brown, 62, from Dumfries but a regular visitor to Edinburgh, said: “It’s one of the old, established buildings and it’s so sad to see it going down. It’s the public that’s not really supported it properly, really, which is sad.
“I’m as bad as anyone, I want a bargain as well. I’m more inclined to go to your Matalans and your TK Maxxs, and even look online as well.”
House of Fraser chairman Frank Slevin 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.”
Richard Lim, chief executive of Retail Economics said: “News that House of Fraser is to shut its Oxford Street store and 30 others is a huge statement of intent. The closure of such an iconic flagship store signals the massive restructuring task at hand.
“Department stores are incredibly expensive to operate and the last few years have seen costs spiraling upwards from business rates, rents and National Living Wage. These traditional retail business models that hold huge fixed costs are simply becoming unsustainable.”
As well as the store closures, House of Fraser’s restructuring deal will also see the rents slashed for a further ten stores that will remain open.
Hamleys’ Chinese owner C.banner is being lined up to buya51percentstakeinhouse of Fraser from current owner Nanjing Cenbest and invest £70 million into the business. However, its cash injection is pledged only on the condition the retailer can agree the CVA restructuring.
Will Wright, a restructuring partner at KPMG, which
is handling the CVA, warned that House of Fraser would be at risk of administration if the CVA does not go ahead.
He said: “The business has been impacted by the mounting pressures facing the UK high street, with the declining profitability of certain stores exacerbated by costly legacy leases which were originally negotiated many years ago.
“With trading conditions unlikely to materially improve in the short term, the future of House of Fraser is at significant risk unless steps to restructure the business both financially and operationally are taken.”
House of Fraser is the latest in a string of retailers who have used the controversial insolvency procedure of a CVA in a bid to stave off administration. New Look, Mothercare and Carpetright have also undertaken the process, while restaurant businesses have also been seeking to cut their costs with store closure programmes, with Carluccio’s, Byron and Prezzo all pushing through CVAS this year.