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New investment ‘should save’ House of Fraser

House of Fraser has filed a Company Voluntary Arrangement (CVA) and plans to use the breathing space afforded to close stores while new owner C.banner International prepares a longer-term recovery plan.

While the exact terms of the CVA have yet to be revealed, reduced rents and the closure of underperforming stores should help the department store operator survive.

Chinese company C.banner, which owns the Hamleys toy chain, will take a 51 per cent stake in House of Fraser which is expected to result in a significant capital injection.

Charlotte Pearce, a retail analyst at GlobalData, says while CVAs often only delay the inevitable, “this one does at least come with the promise of a cash injection to invest in the remaining stores, which have been starved of investment in recent years”.

She says the House of Fraser brand is not beyond repair.

‘‘Unlike recent CVAs from New Look, Toys R Us and Mothercare, which have in part stemmed from unnecessarily large store portfolios, House of Fraser has just 59 stores across the UK and Ireland. A number of its legacy stores are in second or third tier locations and with falling footfall on local high streets as well as little investment to make stores a destination for shoppers, House of Fraser is suffering more than other UK department stores.”

Pearce says that while House of Fraser is not alone in its challenges, its disastrous online sales, which declined 9.8 per cent in the first half of the current financial year, after a new £25 million website platform was introduced, means the company has been unable to prop up its total performance and weather the retail storm.

“Turning its online sales around over the coming months will be key to ensuring a positive future performance for the retailer.”

She says ongoing discounting is unsustainable and will do little to help its operating margin, which was just 1.1 per cent in the 2016-17 financial year.

“House of Fraser desperately needs investment to create stores in which it has the confidence to keep stock at full price for longer.”

‘GlobalData research shows just 16.2 per cent of UK consumers have shopped at House of Fraser in the past year. This is significantly lower than that of Debenhams (41.3 per cent) and John Lewis (32 per cent), showing that House of Fraser provides little in terms of differentiation to attract shoppers.

“Just 60.1 per cent of consumers scored House of Fraser between 7 and 10 for range of brands, far lower than Debenhams (72.2 per cent) and John Lewis (81.9 per cent), showing that it needs to revamp its own brand and branded offer to attract shoppers.

“Investment in its own brand ranges will be necessary to steal shoppers away from its counterparts, Debenhams and John Lewis, which are also focusing on their own brand, exclusive offer,” said Pearce.’

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