Jun 8, 2018
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House of Fraser questions: will CVA be approved and can it survive long-term?

Jun 8, 2018

The shock of the planned House of Fraser closures has been followed up by intense speculation with analysts debating the chances of the firm’s CVA being approved by its creditors, as well as HoF’s long-term prospects.

House of Fraser

It’s clear that the firm has shown itself willing to take tough decisions and to really confront its problems. But some think this may not be enough with its decline caused as much by external factors as its own strategies.

GlobalData’s senior retail analyst Sofie Wilmott said that “though department store retailers are struggling on the whole, House of Fraser is in a weak position and has failed to attract consumers who do not have a clear reason to shop with the retailer over its competitors.” 

She believes House of Fraser “does not have a distinctive USP,” unlike mid-market rival John Lewis or luxury players Selfridges and Harrods, and added that it’s “surprising” it managed to sustain its larger property portfolio for so many years considering many of the smaller towns where its stores are located “do not warrant a department store.” 

“Unprofitable and unnecessary stores will be in part to blame for the retailer having historically one of the lowest operating margins of the department store players – sinking to 1.6% in 2017/18 versus 2.4% last year,” she explained.

Wilmott also thinks that although HoF will lose market share as shoppers shift to brands’ own stores, other department stores and other online retailers such as Amazon and Asos,” even if it manages to pick up some sales for its own website.

Meanwhile David Brewis, CMO at retail engagement platform Amplience, said the store closures are “a drastic [but] understandable strategy,” citing similar moves by M&S. “Faced with competition from online retailers with huge product ranges, such as Amazon and Asos, it's difficult for these department stores to continue with a traditional approach to retailing. But this doesn't mean that the department store must disappear from the British high street.”

He believes HoF’s future rests on it being able to make a difference with its remaining 28 stores. “[They] need to make more impact on potential customers by becoming experiential branded spaces which reflect and enhance the retailers online offering,” he said, adding that this carries through to the online experience.

“Effective content strategy now underpins everything, from brand storytelling through to product imagery through to leveraging UGC. Retailers must ensure an agile approach to delivering content which is time-sensitive, on-trend or promotional [to] capture the hearts and wallets of shoppers.”


Retail analyst Richard Hyams attributed HoF’s decline to a basket of issues including a lack of investment and brand differentiation, and not focusing on its core customer, as well as the “most difficult retail market anyone has ever seen.”

In particular he thinks the lack of really strong own labels, which its mid-market rivals have, has been a problem, while other analysts said that a reliance on concessions are part of that same issue and has worked against it.

But for some, the main problem is simply that the firm’s business model isn’t valid today. Richard Lim, chief executive of Retail Economics, told the Wall Street Journal: “These traditional-retail business models with huge fixed costs are simply becoming unsustainable for some retailers. The announcement to close such a significant number of stores highlights the unyielding shift toward online shopping and overcapacity concerns.”


Of course regardless of the causes of its problems, HoF has to focus on the future and the immediate future will see it trying to convince creditors to approve its CVA plans. Will it get the green light on June 22? 

That’s still uncertain. The retailer’s bad luck is that it’s the latest in a number of peers resorting to CVAs this year and so faces landlords whose patience is wearing thin. Also, its stores are particularly large leaving many landlords averse to backing its strategy without some kind of benefit in exchange. But those same landlords also know that a vote against the plan could mean the company falling into administration and leading to even greater losses for them.

House of Fraser is closing a raft of stores

Meanwhile, the British Property Federation (BPF), which represents landlords, has called for the government to investigate whether retailers are abusing the CVA process. Its members are facing massive losses and are angry, and they’re particularly upset that they feel bond holders, banks and shareholders have more protection than they do.

On Thursday and Friday there were also reports of local authorities and landlords talking to the company about any slim prospects of keeping open local stores slated for closure. But these are unlikely to result in any change of mind as the multimillion pound new financing HoF will get from soon-to-be majority owner C.Banner is dependent on its radical restructuring.

The company really is fighting for survival. It made a loss of £44m last year as sales fell from £840m to £787m and the cost of the store estate has become “unsustainable” which means an “existential threat to the business,” HoF said.

Some analysts have questioned whether HoF’s CVA will achieve all it wants given that the track record of CVAs isn’t exactly impressive. 

However, HoF’s current majority owner, Sanpower, which has kept relatively quiet in all this, on Thursday, issued a statement following the reaction to the store closure announcement and stayed relatively upbeat. It said: “Like many other retailers, House of Fraser needs to adapt to a fundamentally different retail environment. We believe that a restructured business has an exciting future, and believe C.banner is the perfect strategic partner to help us accelerate the company's growth together.

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