House of Fraser is to restructure under a proposed Company Voluntary Arrangement (CVA) and close 31 of its 59 stores, with up to 6,000 job losses expected.
[9th June 2018]
House of Fraser became the latest struggling retailer to confirm that it will restructure under a CVA proposal to be put to the vote of its creditors on 22 June 2018.
The CVA proposal, which needs to be a approved by at least 75% of its creditors in value, will lead to the closure of 31 of its stores (including its flagship store in Oxford street London and the sale of a 51% stake in House of Fraser to the owner of Hamleys, C.banner. The stores scheduled to close are expected to stay open until early 2019.
If approved by creditors, the move will result in the loss of 6,000 jobs: comprised of 2,000 direct employees and 4,000 brand concession staff.
As a further cost saving measure, the head office in Baker Street will be moved to a new location.
This is another high profile example of the rapidly changing face of the retail high street and highlights the extreme challenges faced by traditional bricks and mortar retailers against the tide of changing demographics and consumer behaviour. Additionally, the increases in high street rents, business rates and the living wage have combined to create a perfect storm.
The shift towards online retailing (the bricks to clicks phenomenon) and also towards shopping parks located away from the high street, with free parking, space and combined with entertainment and food and hospitality makes the option of a family day out more appealing.
Restructuring a business faced with mounting costs and falling revenues and profits is the only way out for some, as the only viable alternative to closure and liquidation. A CVA is an insolvency tool that can be utilised to formalise a restructuring plan and implement changes necessary for a business’ survival.
However, a recent spate of high profile CVAs, that have been used as a means of terminating onerous property leases has lead to widespread criticism by landlords and other property specialist groups. For example, the British Property Federation (BPF) has called for the government to urgently review the process and Ian Fletcher, BPF's director of real estate policy, has said that some CVAs are seen as "simply lease-stripping exercises" by landlords.
Nonetheless, CVAs are an important tool to be used in business recovery and restructuring and the overriding principal under which they operate is to save a business or as much of it as possible and thereby save jobs. Creating a leaner and more viable business and delivering a better result for creditors than if the company had been liquidated.
Licensed Insolvency Practitioner (ICAEW) Director, RCM Advisory Ltd.
Richard Cacho is a Chartered Accountant (ICAEW) and Licensed Insolvency Practitioner with over 30 years of business recovery, turnaround and insolvency experience.
Freephone: 0800 288 4088