This article is more than 2 years old

This article is more than 2 years old

Homebase is preparing to announce the closure of up to 80 stores next week, with the probable loss of about 1,000 jobs.

The loss-making DIY chain, which was bought by the restructuring experts Hilco in a deal agreed in May, is expected to file a company voluntary arrangement (CVA), a form of insolvency that enables a retailer to exit or alter deals with landlords.

The process is expected to be handled by Alvarez & Marsal, a specialist adviser on corporate insolvencies that advised Toys R Us on a CVA before the it collapsed this year.

The company has already shut 17 unprofitable stores and confirmed plans to close at least 23 more. Industry insiders said the 23 would be part of a CVA involving between 60 and 80 stores in total.

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Homebase was bought by Hilco, the owner of HMV, for £1 in a deal agreed in May after its previous Australian owner, Wesfarmers, pulled the plug on its UK venture. The botched Australian acquisition of Homebase is considered one of the most disastrous retail takeovers, alongside Tesco’s doomed expansion into the US with its Fresh & Easy grocery chain.

Wesfarmers, which bought the business for £340m two years ago, offloaded the entire Homebase chain of 250 stores, with a workforce of just over 11,000 people, ditching a plan to convert them to its Bunnings brand.

On top of Wesfarmers’ catalogue of errors, Homebase is battling to survive in a tough DIY sector hit by a slowdown in the housing market and a squeeze on consumer spending.

In May, the B&Q owner, Kingfisher, blamed “soft demand” amid harsh spring weather for a 9% fall in sales in the three months to the end of April, while Travis Perkins, the owner of Wickes, is reviewing whether to offload the DIY chain, where sales and profits are falling.

Traditional chains are also under pressure from online specialists such as Victoria Plum and of discount stores such as Home Bargains, B&M Stores and Aldi, which sells tools, wallpaper and gardening accessories in its bargain aisles.

Since the rescue by Hilco, Homebase has cut 300 jobs at its Milton Keynes head office and horticultural buying office in Swindon. Several of the 24 stores that had been converted to Bunnings outlets, including those in Folkestone and Frome, have been switched back to the Homebase brand.

At least four other major retail chains – House of Fraser, New Look, Carpetright and Mothercare – turned to CVAs to jettison unwanted outlets this year. Restaurant groups such as Carluccio’s, the Prezzo group, Byron and Jamie’s Italian have done the same.

Landlords have expressed anger at the growing use of CVAs, with the British Property Federation calling for an urgent government review, saying the process is being misused.

Melanie Leech, the chief executive of the BPF, said: “CVAs should not be entered into lightly as they impact jobs, local communities and property owners and the pensioners’ savings that they invest. We advise any insolvency practitioner, representing a business seeking to enter into a CVA, to engage in confidence with the British Property Federation’s insolvency committee as early as possible in the process. Homebase’s team has not yet done this, but this best practice would allow for constructive engagement, to aim to ensure greater transparency and fairness.”

A group of landlords also launched a legal challenge against House of Fraser’s CVA but settled out of court at the weekend.

The department store is in last-ditch talks about refinancing with a number of parties after C.banner, the Chinese owner of Hamleys, withdrew plans to invest £70m in the business. The group is expected to fall into administration as it struggles to fund payments to suppliers and rent bills due in coming weeks.

House of Fraser in last-ditch talks

Frasers in Edinburgh will be the first of 31 House of Fraser stores to close after the landlord agreed to take back the keys next month.

The ailing department store chain is in last-ditch rescue talks after C.banner, the Chinese owner of Hamleys, withdrew plans to invest £70m as part of a restructure involving the closure of 31 of House of Fraser’s 59 stores.

The group is facing administration as it struggles to fund pay suppliers and rent due in coming weeks.

The 71,500sq ft store on Princes Street, which House of Fraser took over in 1953, is expected to be redeveloped as a hotel or offices.

Landlord Parabola, which recently bought the site for more than £13.5m, is also behind the Edinburgh Park development that includes offices, homes and a park.

The Princes Street site has been occupied by a department store since 1894 when Robert Maule & Sons converted a building which began life as the Osborne Hotel. H Binns & Son demolished the original building in 1931, creating the store that exists today.