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Closures loom at struggling House of Fraser

Sky News logo Sky News 19/04/2018
A general view of House of Fraser on Oxford Street on June 9, 2016 in London, England. © Getty A general view of House of Fraser on Oxford Street on June 9, 2016 in London, England.

The struggling department store chain House of Fraser (HoF) has drafted in advisers to examine options for accelerating its restructuring, raising the prospect of further shop closures at a dire time for the British high street.

Sky News has learnt that KPMG has been asked by the Chinese-owned company to explore the possibility of a formal process called a Company Voluntary Arrangement (CVA), months after it informally asked store landlords to agree to big rent cuts.

The news of KPMG's appointment, which is understood to have been signed off in recent days, will fuel expectations that a substantial number of HoF's 59 outlets across the UK are facing the axe.

Related: Debenhams profits crash 85%

Sources close to the company said it was not certain that HoF and its shareholders would pursue a CVA but conceded that one was a possibility.

Any decision to move ahead with a CVA would threaten hundreds of jobs.

CVAs enable companies to reduce their debts, with chains including Carpetright, New Look and Toys R Us UK using the process in the last few months to seek creditors' permission to close stores and slash rent bills.

The mechanism offers no guarantee of revival, however, with Toys R Us UK crashing into administration just weeks after its CVA was approved, with more than 3000 jobs lost as a result.

A general view of House of Fraser on Oxford Street, London, following an earlier incident. © PA A general view of House of Fraser on Oxford Street, London, following an earlier incident. Between them, Carpetright and New Look plan to close roughly 150 stores.

HoF, one of the best-known names in the British retail industry, has been living a hand-to-mouth existence for months, with its shareholders periodically providing it with multimillion pound sums to enable it to pay landlords and concession operators.

On Friday, a source close to HoF, which is controlled by China's Sanpower Group, insisted that KPMG had been brought in to advise its management on "a range of options".

Sky News revealed last month that another of the major accountancy firms, EY, had been called in by HoF's bank lenders to advise on their exposure to the chain.

There is a growing expectation within the sector that HoF may succumb to the vice-like cost pressures and structural headwinds which have forced Maplin and Toys R Us UK into bankruptcy this year.

In total, HoF is carrying ‎hundreds of millions of pounds of debt, including a £350m bond which is publicly traded.

The department store chain has faced additional scepticism from the financial community because of the opaque nature of its ownership.

Last month, Sanpower's parent, Nanjing Xinjiekou Department Store, said it would sell 51% of HoF to Wuji Wenhua, a Chinese tourism group about which little is known.

That deal has not yet completed, and it is unclear what, if any impact, it will have on HoF's financial resources.

Just over 10% of HoF is owned by Sports Direct International, the UK-based retailer controlled by Mike Ashley, the owner of Newcastle United FC.

Mr Ashley has long been rumoured to be keen to pursue a merger of HoF and Debenhams, in which he holds an even larger minority stake.

Debenhams says it was hurt by a highly promotional market over the Christmas season © Getty Debenhams says it was hurt by a highly promotional market over the Christmas season On Thursday, shares in Debenhams were trading sharply lower after it said full-year profits would be at the lower end of market expectations.

HoF is due to present details of its full-year trading performance to bondholders in the coming weeks, when it will also come under pressure to set out firmer plans ‎to tackle its rent burden.

Sky News revealed in January that the company had written to landlords to seek rent reductions, while the company is also facing pressure from credit insurers deciding to stop providing cover to some of the chain's suppliers.

HoF's trading performance has done little to alleviate concerns over its future.

Sales fell 2.9% in its stores and 7.5% online during the crucial Christmas trading period, with conditions on the high street deteriorating further since then.

The company is run by executive chairman Frank Slevin and Alex Wiliamson, who was brought in from the Goodwood Group last year.

It employs roughly 5,000 people directly, as well as about 12,500 staff who work in concessions in HoF stores.

The turmoil on the high street is not restricted to retailer, with Prezzo and Byron among the restaurant chains shutting significant numbers of outlets.

A HoF spokesman declined to comment further on KPMG's appointment.

NOW SEE: The big brands in danger of disappearing from Britain's high streets (Lovemoney)

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