Number of House of Fraser stores to be shut as surge in online retail weighs on brick-and-mortar stores
RISE OF E-COMMERCE SUCKS DEMAND AWAY FROM HOUSE OF FRASER, POUNDWORLD
The UK’s deepening retail crisis threatens more than 11,000 additional job losses. House of Fraser Ltd plans to close more than half its department stores in the UK and Ireland, potentially costing 6,000 jobs, as the struggling chain pursues insolvency procedures aimed at securing new investment.
Discount chain Poundworld, bought three years ago by TPG Capital, has just 10 days to find a buyer or it will collapse, according to a person familiar with the matter. The chain employs 5,300 people.
The two companies are the latest casualties of a deepening crisis that’s precipitated a spate of bankruptcies and restructurings among the UK’s brickand-mortar chains this year. The rise of Amazon.com Inc and other e-commerce outlets, who account for nearly onefifth of the UK’s retail sales, has sucked demand away from stores. That’s been compounded by a jump in sourcing costs after the Brexit-induced drop in sterling, as well as increases in staffing costs and commercial property taxes.
Toys “R” Us Inc’s UK unit and electronics retailer Maplin both collapsed in February. Since then, fashion retailer New Look, baby and childrenswear retailer Mothercare Plc and floor-coverings seller Carpetright Plc have all announced dozens of store closures through company voluntary arrangements — the same insolvency procedure House of Fraser is pursuing.
“It’s a tough market and the weakest retailers are being picked off,” said Bloomberg Intelligence analyst Chris Chaviaras. “These are companies who have failed to adapt to increased competition.”
Amazon, which increased its UK revenue by 19 per cent to $11.4 billion last year, announced this week it would add 2,500 workers in the UK in 2018.
Chinese Investment
House of Fraser is seeking to shut 31 of 59 outlets to secure investment from Chinese retailer C.banner International Holdings Ltd, which has pledged the funds on the condition the company shuts stores.
The House of Fraser closings are set to include the company’s flagship store on London’s Oxford Street. The company will seek approval from its creditors on June 22.
House of Fraser’s £175 million ($236 million) of bonds due in 2020 have fallen 15 pence this year to a record-low 73 pence, according to data.
“Department stores are incredibly expensive to operate,” Richard Lim, chief executive officer of consultancy Retail Economics, said by email. “These traditional retail business models are simply becoming unsustainable for some retailers.”
Faced with the alternative of their tenants going out of business and a likely struggle to find a replacement, landlords have reluctantly approved other CVAs this year. But they’ve been irked by House of Fraser’s decision to go public with its plans in May without first consulting with them, according to the British Property Federation.
Without mentioning House of Fraser directly, the group said in a statement Thursday that some retailers are abusing the CVA process.
Brexit effect
Poundworld has filed a notice of its intention to appoint an administrator — an outside official who oversees the UK equivalent of bankruptcy proceedings — and will spend the next 10 days in talks with prospective buyers, the person familiar with the matter said.
Poundworld, which sells everything from cans of deodorant to boxes of tea bags for £1, has been acutely impacted by increased sourcing costs. The retailer has 355 stores, about 70 of which were opened under TPG’s ownership.