LONDON: House of Fraser creditors approved the struggling British department store group’s survival plan at meetings on Friday, paving the way for store closures and up to 6,000 job losses.
A string of UK retailers have either gone out of business or announced plans to close shops recently, as they struggle with subdued consumer spending, rising labour costs and higher business property taxes as well as growing online competition.
Department stores appear particularly vulnerable, with Bhs going bust in 2016, and Debenhams issuing its a third profit warning in six months on Tuesday.
Earlier this month, Chinese-owned House of Fraser said it would seek creditor approval for so-called Company Voluntary Arrangements (CVAs) that would see 31 of its 59 stores close early next year, with 2,000 direct employees losing their jobs as well as 4,000 who work for brand and concession partners.
The 169-year-old retailer needed the CVA to go through to secure new capital from Chinese retailer C.banner.
Last month, C.banner agreed to become House of Fraser’s majority owner with a 51% stake, with Nanjing Cenbest retaining a minority holding. Nanjing paid 480 million pounds ($638 million) for an 89% stake in 2014.
“The approval of the CVAs is a seminal moment in House of Fraser’s history,” said chairman Frank Slevin.
“We must now continue with the implementation of our restructuring plan. This is also an important milestone in the transaction with C.banner and moves us toward the completion of the capital injection first announced in May.”
CVAs, which allows firms to avoid insolvency or administration, have also been adopted this year by fellow UK retail strugglers – fashion chain New Look, floor coverings group Carpetright and mother-and-baby goods retailer Mothercare.
But it is no guarantee of survival. Toys r Us UK and Bhs both carried them out but still collapsed.
“The key issue is whether even the proposed rump of 28 stores is too many for the current marketplace to support,” said independent retail analyst Nick Bubb.
“The brutal reality is likely to be that the space that House of Fraser want to dominate is already occupied by the likes of Selfridges and John Lewis,” he said.
There is also the possibility that disgruntled House of Fraser landlords could launch a legal challenge to the CVA.
Mark Fry of Begbies Traynor and Charlotte Coates of JLL, who have been working together to advise a group of landlords through the CVA, said landlords had a 28-day window to consider whether to make a legal challenge against the process.