House of Fraser is planning to close an unknown number of its 59 stores after Chinese group C.banner, parent company of British toy store Hamleys, agreed to buy a 51% stake in the business.
C.banner is buying the stake from Nanjing Cenbest, part of the Sanpower conglomerate, which is retaining a minority stake in House of Fraser, having acquired an 89% majority stake in the business in 2014.
However the deal with C.banner, which will see it subscribe to new shares in House of Fraser and acquire existing shares from Nanjing Cenbest in a move that will raise £70m of fresh capital, is dependent upon the department store pursuing a Company Voluntary Arrangment (CVA).
As part of the CVA (a legal arrangement with creditors that allows a business to pay back part of its debts over a period of time), House of Fraser will negotiate store closures and rent reductions with its landlords. It is not known how many stores the business will seek to close as part of the process, which is expected to kick off in June, but some reports place the number as high as 20.
Chairman of House of Fraser Frank Slevin said the deal with C.banner was 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,” Slevin said.
“These measures are essential to ensure that House of Fraser remains an iconic department store group for many years to come,” he added.
Speculation that House of Fraser might pursue a CVA has been mounting for weeks, in particular since it appointed KPMG to advise on its future options. And Nanjing Cenbest had been seeking to offload a large part of its stake for some time.
Initial speculation surrounded a sale to tourism group Wuji Wenhua but it was revealed last month that it had signed a memorandum of understanding with C.banner International, which is best known in China for selling footwear (it owns brands including Sundance, Steve Madden and United Nude) and which entered the UK market three years ago with the purchase of Hamleys.
C.banner International is run by Chen Yixi who is the brother-in-law of Chinese billionaire Yuan Yafei, who controls the Sanpower Group.
House of Fraser would be the latest large UK retailer to use the CVA process to reduce its store estate and give itself the opportunity to financially restructure. New Look is currently in the midst of a CVA, part of which will see it close 60 of its 600 stores, and fast fashion retailer Select is also employing the process to enable it to restructure, although it intends to retain all of its stores.