Landlords could block KPMG's House of Fraser CVA
Big Four firm KPMG has worked with UK high street brand House of Fraser to develop a restructuring plan – however angry landlords could block the scheme, threatening the store’s future. The company voluntary arrangement (CVA) is set to launch in June, after House of Fraser became the latest British retailer to fall victim to the consumer crunch of 2018, as decreased spending power among the public and heightened competition from e-commerce have put long-term market incumbents under strain.
After a positive term in 2017, 2018 has seen the global and UK retail sectors have been stung by several high-profile liquidations. Home improvement store Homebase recently called in BCG advisors amid doubts over its future and Poundland owner Steinhoff has been working to avert collapse for months, with shareholders now admitting the firm is on the brink of bankruptcy. Elsewhere, a string of other companies have already fallen into administration, amid a trend which some experts are comparing to the retail crash of 2008.
Both the UK retail sector and the casual dining market have been reportedly facing increasing uncertainty relating to Brexit, with a weakened pound and the future prospect of trade tariffs making imports expensive fare. Compounding this however, the stagnation of wages in real terms, coupled with rising consumer debt, have also had a major impact on consumer’s spending power in the sector, in a re-run of the 2007 credit crunch.
With spending by the public dropping dramatically as consumers tighten their belts amid hard times, retailers Maplin and Toys R Us both collapsed within a matter of days of one-another, while international teenage fashion outlet Claire’s soon followed suit. Many of the stores also suffered from being over-encumbered with debt by new owners, often from the world of private equity. Fitting this trend, House of Fraser now also faces an uncertain future, as it prepares to enter a CVA to avoid administration.
The Chinese owner of struggling UK retailer House of Fraser announced plans to sell off its stake in the business less than four years after buying the 169-year-old brand. Sanpower Group, the largest shareholder in Nanjing Xinjiekou, bought House of Fraser in 2014 for £155 million but faced difficulties in launching the department stores globally, as it originally planned. The Chinese group also reportedly failed to make new investments into House of Fraser’s UK stores that it had promised following the acquisition of the group, which it announced in March it would sell – although thanks to a problematic start to 2018, it has failed to seal a deal as of yet.
House of Fraser has released a string of troubling financial bulletins since the start of the year, following a 2.8% decline in sales over the vital Christmas period. In February credit insurers cut ties with the retailer, refusing to cover its suppliers over fears it could go under, prompting the British department store to hire Rothschild to help it restructure a debt burden of some £400 million. While Sanpower has apparently pumped £30 million into House of Fraser to keep it afloat, the want-away ownership has since drafted in KPMG to help draw up a further restructuring strategy in April.
At the time, a CVA was projected as the most likely outcome – with some of the retailers 6,000 employees and 11,500 concessions staff facing probable redundancy as a result. CVAs have become a popular method of staving off administration in recent times, as they allow embattled companies to avoid administration while offloading underperforming stores and reducing rent costs. This latter point seems to have become a sticking point, as House of Fraser approaches its planned implementation date in June, however.
House of Fraser is struggling to get approval from its landlords for its plan, casting doubt over whether it can proceed at all. According to the Press Association, representatives from the store met with landlords to discuss the proposals. The meeting took place the day after landlords slammed the retailer for proposing reduced rates while revealing a significant cash injection from C.banner, the Chinese owner of Hamleys, had been secured. Without the approval of 70% of House of Fraser’s landlords, the CVA cannot go ahead – and with another formal meeting understood to be on the cards in June itself, the plan and the store’s future could both be hanging in the balance.
