• International retailer C.banner is to become majority shareholder in House of Fraser with a 51% stake.
  • The conditional agreement is, amongst other things, subject to House of Fraser restructuring its store portfolio.
  • House of Fraser intends to complete the restructuring plan via a CVA. It says the reduction of its store portfolio will provide the business with an effective platform for future growth. 
House of Fraser intends to complete the restructuring plan via a CVA

House of Fraser intends to complete the restructuring plan via a CVA

House of Fraser is to reduce its store portfolio as part of a company restructure which will see Chinese retail group C.banner acquire a 51% stake in the struggling UK department store retailer.

C.banner, which designs, manufacturers and sells branded women's footwear in China, and toys globally through its Hamleys chain, has inked an agreement with House of Fraser owner Nanjing Cenbest, a Shanghai-listed department store chain controlled by Sanpower Group.

The move will see C.banner become majority shareholder in House of Fraser and subscribe for new shares in the company, providing vital capital to accelerate the board's transformation plans. Nanjing Cenbest will remain a significant minority shareholder.

The transaction is expected to complete by the end of June 2018 and is subject to both bondholder and shareholder approvals.

The conditional agreement is subject to House of Fraser restructuring its store portfolio. As a result, the retailer says it intends to launch a company voluntary arrangement (CVA) where a reduction in its store number will provide the business with an effective platform for future growth.

A formal proposal is expected around the beginning of June, with the store restructuring, pending creditor approval, expected to conclude in early 2019.

"C.banner's acquisition of 51% of House of Fraser, together with the new capital and restructuring, represents a step to securing House of Fraser's long-term future," says Frank Slevin, chairman of House of Fraser."

He adds the group needs to go "further and faster" if it is to confront the seismic shifts in the retail industry.

"House of Fraser's future will depend on creating the right portfolio of stores that are the right size and in the right location."

"There is a need to create a leaner business that better serves the rapidly changing behaviours of a customer base which increasingly shops channel agnostically. House of Fraser's future will depend on creating the right portfolio of stores that are the right size and in the right location," he adds.

"C.banner's investment is a vote of confidence in our prospects. We also know that if we are to deliver a sustainable, long-term business then we need to make difficult decisions about our underperforming legacy stores. I am all too aware that this creates uncertainty for my colleagues in the business and so we will be transparent with them throughout the process.

"These measures are essential to ensure that House of Fraser remains an iconic department store group for many years to come."

The news follows the signing of a Memorandum of Understanding (MoU) between C. Banner International and Nanjing Cenbest last week.

Charlotte Pearce, Retail Analyst at GlobalData, agrees that with the closure of weaker stores and a capital injection, "House of Fraser's brand is not beyond repair."

She adds: ''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 also notes the retailer "disastrous online sales" mean it has been unable to prop up its total performance and weather the retail storm.

"Its continued run of discounting is unsustainable. House of Fraser desperately needs investment to create stores in which it has the confidence to keep stock at full price for longer."

Research from GlobalData also suggests House of Fraser provides little in terms of differentiation from its rivals and needs to revamp its own brand and branded offer to attract shoppers.