Hundreds of jobs at risk after Chinese firm C.banner agrees to buy 51% stake in retailer

This article is more than 2 years old

This article is more than 2 years old

House of Fraser is to close stores, potentially putting hundreds of jobs at risk, in a restructuring deal that will give control of the retail chain to the Chinese owner of Hamleys.

C.banner is buying a 51% stake in the parent group of the ailing department store group. The buyout will involve the acquisition of shares from Nanjing Cenbest, part of China’s Sanpower conglomerate, which will retain a minority stake.

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C.banner has also agreed to pay a further £70m for new shares leading to a “significant capital injection” in House of Fraser. That comes on top of £25m of cash pumped into the company by shareholders since March this year.

The deal is subject to House of Fraser closing an unknown number of its 59 stores and renegotiating rents with landlords through a company voluntary arrangement (CVA) insolvency process , which is expected to be launched in June.

Industry experts suggested House of Fraser would have to consider closing at least 20 sites. The group has already been negotiating with landlords as part of plans to reduce its floorspace by 30% by slimming down a number of outlets. It is understood that deals have been struck to downsize stores in cities including Plymouth and Wolverhampton.

Quick guide The state of UK retail's ill-health Show Hide Retailers that have gone bust 2017-18 Toys R Us: 180 stores employing 3,000 staff, collapsed 28 February. Owes £15m in VAT, due by 1 March. Maplin: 200 electronics and gadget stores, founded 1972, also failed on 28 February. Warren Evans: bedmaker went into administration earlier in February. East: fashion brand with nearly 50 outlets folded in January. Juice Corp: business behind brands including Elizabeth Emanuel and Joe Bloggs went under in January. Multiyork: furniture chain with 50 stores went into administration in November. Feather & Black: bedroom furniture and bedding specialist with 25 outlets fell into administration in November. Retailers under pressure New Look has debts of more than £1bn and has lost some of its credit insurance cover, which protects suppliers if a retailer goes bust. In the 10 months to Christmas, sales fell 11% and losses hit £123m. The company intends to close 60 stores and change its fashion ranges, but faces a struggle to win back young shoppers. House of Fraser's Chinese owner, Sanpower, had to stump up £25m to see the store through Christmas and its debt is rated as junk. The retailer is attempting to reduce the size of its stores by 30% and has asked landlords to cut rents. Debenhams, a 178-store chain that is more than 200 years old, is axing one in four of its managers and considering closures to cut costs. It has warned that profits have been hit by lower than expected sales, with profit margins also down as a result of having to cut prices to match rivals. Photograph: Tony Margiocchi / Barcroft Images/Barcroft Media

The closures could lead to hundreds of job losses at the 169-year-old department store chain, which employs 5,000 people directly and a further 12,500 people in concessions for fashion brands including French Connection, Phase Eight and Ted Baker.

The loss of such large retail tenants will also be a major blow to high streets reeling from the collapse of Toys R Us and Maplin, and the closures of 60 New Look stores under a rescue restructuring. Carpetright plans to shut 92 stores and Mothercare is expected to close dozens of outlets as it battles for survival.

The switch towards online shopping is hitting all retailers but department stores are finding it particularly hard to adapt because there are few alternative tenants for their large stores, most of which are tied into long-lease agreements.

In the US, hundreds of department stores closed last year, while in the UK BHS collapsed in 2016 after years of difficulties. Debenhams has closed two stores and announced plans to close up to eight more. It is also looking to find new uses for redundant space such as gyms, restaurants and hot desk offices.

“A CVA for House of Fraser has seemed inevitable for some time as the migration to online sales leads to a number of stores becoming unprofitable,” Patrick O’Brien, an analyst at GlobalData, said. “If it can get more realistic rents and get rid of weaker stores, and with investment in own ranges and the store environment it has every chance of a viable future.”

House of Fraser said the restructuring would “provide the business with an effective platform for future growth”.

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Under the deal, Sanpower and C.banner will co-own the holding company that controls an 89% stake in House of Fraser’s UK business. The Sports Direct boss, Mike Ashley, controls the other 11%.

The investment in House of Fraser is a major step up in investment in the UK for the Hong Kong-listed C.banner, whose chairman, Chen Yixi, is the brother-in-law of Yuan Yafei, the billionaire chairman of Sanpower.



C.banner, which specialises in women’s footwear under brands including MIO and Sundance, bought Hamleys in 2015 for an estimated £100m.

Frank Slevin, the House of Fraser chairman, said C.banner’s investment was “a vote of confidence in our prospects”.

Slevin said the management team led by Alex Williamson had made “substantial progress” on a turnaround but added: “We need to go further and faster if we are to confront the seismic shifts in the retail industry. 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.”

However, House of Fraser faces a potentially rocky ride in finalising its restructuring plans, according to the British Property Federation. Ian Fletcher, director of real estate policy, said discussions with landlords were likely to be “awkward and any support for the CVA given grudgingly” as the company had not consulted them before going public.