House of Fraser has withdrawn as an anchor tenant of Chester’s £300m Northgate scheme while the retailer’s shops in Altrincham, Birkenhead and Carlisle are to close in seven months’ time as part of a company voluntary arrangement.
KPMG, appointed to advise House of Fraser in April, has put together a restructuring plan that involves the closure of 31 of 59 locations across the country, with only Manchester’s store remaining in the region.
The reduction of the retailer’s store estate is a condition of the group securing new funds from C.banner, which agreed in May to become its majority shareholder, taking over from fellow Chinese company Nanjing Cenbest.
The CVA proposals were filed with the Court of Session in Edinburgh yesterday.
House of Fraser signed up as the largest retail anchor tenant for 100,000 sq ft at the £300m Northgate scheme in February 2017, but has now informed Cheshire West & Chester Council it would not be progressing with the store.
The scheme has come under fierce criticism in recent months after more than 120 property professionals signed an open letter calling on the council to stop work on the scheme, arguing private sector had “lost confidence in the council to deliver a successful regeneration within a reasonable timescale”.
The wider scheme includes 45 shops, 12 restaurants, a cinema, residential, and office space, but other than House of Fraser only a handful of major tenants have been announced so far.
Cllr Samantha Dixon, leader of the council, said: “It is obviously disappointing that House of Fraser’s financial problems have led to one of our tenants to change their decision to be part of the Chester Northgate scheme.
“Whilst we remain committed to regenerating the Northgate area of the city and to delivering a high quality scheme, clearly we will reflect on the impact of this announcement. We will continue to keep the mix and phasing of the scheme under review and continue to engage with interested parties as we have done all along.
“The Council’s planning permission provides the flexibility for us to make changes in reaction to changes in the market in line with our prudent approach to development. The retail element of the scheme is scheduled to be delivered in the second phase of the development and so House of Fraser’s decision at this point does not fundamentally undermine our ambition to see the comprehensive redevelopment of this vital part of the city.”
Will Wright, restructuring partner at KPMG, said: “The CVAs proposed by House of Fraser give the business a vital lifeline to avoid administration by renegotiating the lease terms of its UK-wide property portfolio, as part of a wider restructuring.
“The business has been impacted by the mounting pressures facing the UK high street, with the declining profitability of certain stores exacerbated by costly legacy leases which were originally negotiated many years ago.
“With trading conditions unlikely to materially improve in the short term, the future of House of Fraser is at significant risk unless steps to restructure the business both financially and operationally are taken.”
KPMG said that at 16 “Category One” stores, leases will be retained at current rates, while at a further 10 stores a reduced rent, equivalent to 75% of the current rent, will be sought. Two stores, one in Ireland and another held by a separate legal entity, are not included.
Of the 31 stores to close, a reduced rent equating to 30% of the current rent will be paid for the remaining seven months before closure. KPMG said: “It is important to stress that none of these stores will close on day one, and employees, business rates and suppliers will continue to be paid on time and in full for the duration of the closure period.”
At least 75% of creditor approval for each of the CVAs is required for them to proceed. The creditors will vote on the CVAs on 22 June. KPMG said that it will spend the coming weeks in further talks with key creditors.
Also included in the 31 stores under threat are two London stores, Oxford Street and King William Street, and the retailer’s Birmingham shop.