House of Fraser future uncertain as Ashley buys brand

Once regarded as pivotal anchors in some of the country’s largest shopping centres and high street, the department store has struggled to adapt and reinvent in an age of retail evolution and unfortunate capitulation. House of Fraser’s decision to close 31 of its 59 stores as part of a CVA was not in isolation. Debenhams posted an 85% drop in profits back in April, suggesting it would exit around 25 of its locations and “right-size” a further 30. Even the benchmark of UK retail, John Lewis, announced its profits were down 77% and that staff would receive their lowest annual bonus since 1954. The writing has been on the wall for a while. So just what has happened to the once infallible brand? Lack of investment House of Fraser’s portfolio in particular has been met with underwhelming investment and haven’t really changed over the past 30 years. It is out of fashion too – not terrible, but not quite good enough to engage the pull factor from consumers who are exposed to increasingly innovative retail concepts on the high street. Which stores are closing in YOUR town? Both Debenhams and John Lewis have attempted to buck the tide of change and have invested large amounts into technological change over the past decade. One way to pull consumers in has been to enter a discounting cold war with each other, which brings footfall, but decreases revenues. Store portfolio Many of the largest stores across the UK are still locked into long-term leases, a trend the market has moved away from in recent years to increase physical flexibility.  We know the traditional lease looks different from 10 or 20 years ago, with retailers now opting for shorter lease lengths with more flexible terms. And on top of this, they will be paying premium levels of rent on those premises too. That lack of flexibility becomes a real cost issue. And that’s without evening bringing business rates into the equation. And those stores are massive. The average House of Fraser unit covers 130,000 sq ft. The necessity for having the biggest store to sell the most concept is extremely dated. And, although showroom stores in prime locations do still work by showcasing the brand, the rise of internet spending has no doubt added pressure to retailers by changing the way that consumers actually shop. The internet Department stores face the unique challenge of having the USP of selling everything, but figuring out how to sell that concept to shoppers when they can access everything online is a huge test. That concept of “all-under-one-roof” shopping has been replaced by first supermarkets and now the internet. Almost every £1 in every £5 spent in retail now comes through an online channel. What does this mean for the future of House of Fraser’s estate? The House of Fraser portfolio stretches across 59 stores and 7.7 m sq ft of prime retail space. The 31 stores already announced to close as part of the CVA accounts for 3.3m sq ft of that total. With the Ashley acquisition, questions will be asked about how many stores might possibly be taken by Sports Direct.  Retail crisis: the story so far Comparisons can be drawn from the reoccupation of the BHS portfolio which collapsed in 2016. Around 60% of those stores have at this point been re-let to new tenants, the majority of them being in the value and fashion sectors, such as Primark and B&M Bargains’ who have both gone through periods of rapid expansion.  Sport Direct consolidated its own portfolio according to its most recent financials, shuttering a net 19 stores across the UK and announcing a strategy to increase exposure in prime retail locations. House of Fraser’s empty units would provide just that. Ashley, who previously owned an 11% stake in house of Fraser before the full purchase, also owns a near 30% stake in direct rival Debenhams. To send feedback e-mail james.child@egi.co.uk or tweet @jamesChildEGi or @estatesgazette Pic credit: Matthew Chattle/REX/Shutterstock