Analysis: Five things that went wrong at House of Fraser
- Credit: Archant © 2004
Trading on the high street has become a more cut-throat world in the past year.
It seems each week a new company adds its name to the roster considering store closures, job cuts or a restructuring process.
Company voluntary arrangements (CVAs), which allow companies to write off debt and renegotiate rents to continue trading, have been at the centre of many of these sagas – but it was not enough to save House of Fraser, which now risks becoming the biggest casualty yet.
Administrators are confident of finding a buyer, despite a previously-agreed deal to shut half of its 59 stores, with the loss of 6,000 jobs, falling through.
But how did House of Fraser find itself in this unenviable position?
1. Business rates are rising. Like other high street retailers House of Fraser has been stung by an increase in business rates – a tax levied on all commercial property – which took effect last April. As a department store with bigger, and often sought-after, high street locations a rates increase will have dealt a big blow.
2. Property is expensive. House of Fraser commands prime high street buildings and locations, which come with a higher price tag – and property prices are rising. Will Wright, restructuring partner at KPMG, said the company's costly leases – often negotiated with landlords many years ago – had compounded other high street pressures.
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3. Stores are making less money. Shoppers are continuing to turn to the internet rather than the high street for their purchases. While this can still bring in cash for retailers it brings down the profitability of stores – making it less viable to keep them open. Stores also have to be staffed, and with wages increasing labour costs at a company like House of Fraser – with 17,000 workers – may be starting to get unwieldy.
4. Consumers are cash-strapped. With wages barely keeping up with inflation, people have been keeping their belts tight for a number of years. Less disposable income means people think more carefully about their purchases and try to be thrifty – something which can spell trouble for more premium retailers like House of Fraser.
4. The retail market is particularly tough. The litany of companies – from Mothercare to Maplin – which have announced bad news this year is testament to the tough trading conditions. Retail analyst Richard Hyman said it was 'the most difficult retail market anyone has ever seen' – adding that House of Fraser was doing little to stand out from the crowd. '[It] doesn't have anything that nobody else has got,' he said.