House of Fraser

LONDON — It’s not been an easy year for Britain’s heritage high street retailers, and now House of Fraser is feeling some pain.

Although the company continues to be profitable and expand, with stores set to open in China and the U.K. over the next few months, business is getting tougher for the retailer, which has 59 stores across the country.

Chief executive officer Nigel Oddy, who revealed his resignation this week, is the latest in a string of management departures from the retailer, which was purchased by China’s Sanpower Group in 2014.

In the first six months to July, sales were flat at 573.5 million pounds, or $809 million, while underlying profits fell nearly 50 percent to 5 million pounds, or $7.1 million. The company, like many of its peers, blamed an “extremely volatile trading environment” and an ongoing “uncertain economic situation.” All figures have been converted at current exchange rates for the period.

While the British press has speculated that House of Fraser’s Chinese owners have not made good on promises to invest in stores or in international expansion, a variety of industry sources said the departure of Oddy — and others — is part of a natural clearing out under the new ownership, and the stark reality of running a brick-and-mortar business in today’s market.

“It’s a tough business to make work,” said George Wallace, ceo of the consultancy MHE Retail. “You’re in the middle market, coming up against strong monobrand stores and smaller stores. It’s a global thing for the department store sector,” added Wallace, pointing to problems at Lord & Taylor, Macy’s, Marks & Spencer, Debenhams and stores across Germany, France and Belgium.

“The heyday of department stores, where there was a shop in every town, is over, but these multiple-floor stores are still very hungry for investment,” said Wallace, adding that no one wants to shop in a place where the carpet is being held together with bits of tape.

Sanpower Group, owned by Yuan Yafei, purchased House of Fraser in 2014 with the promise of improving the state of the U.K. stores and rolling out formats in China. The first China unit will open in Nanjing before the year’s close, and it’s a replica of House of Fraser’s Glasgow, Scotland, unit, the largest store in the retailer’s stable. It will stock international and local Chinese brands. 
Two further stores in other Chinese cities are in the pipeline, the company confirmed.

Next summer, House of Fraser will open an anchor store at the new Rushden Lakes Retail and Leisure complex in Northamptonshire, England. The other anchors at the lakeside, eco-friendly new development are Marks & Spencer and Primark.

The store, which will have 64,000 square feet of retail space, will be House of Fraser’s first at an out-of-town retail and leisure complex, and the first full brick-and-mortar unit to open in the U.K. since 2008. Five existing store refurbishments are in the works, for a total of 12 over the course of two years, the company said.

A source close to House of Fraser said Monday that Sanpower has committed to support the British retailer “in the event that the business development plans required them, and the board requested them,” and that “possible capital expenditure programs” are under review.

On the omnichannel front, House of Fraser has tried hard to stay ahead of the curve, opening a showroom in partnership with Caffè Nero where customers can have their coffee downstairs and shop upstairs, and working with the coffee chain on click-and-collect services.

Earlier this year, it launched an interactive catalogue using augmented reality and has experimented with beacon technology in the windows of its Aberdeen, Scotland store.

A company spokesperson said Monday that House of Fraser “continues to trade in line with management expectations, and is confident it is well positioned for Christmas, with trading over the Black Friday period to date already showing improvement on last year.” Oddy will remain with the business until his successor is appointed and to ensure a smooth transition. He will leave next year to pursue “new opportunities.”

In September, the company said trading would be subdued in the third quarter, but that the final quarter usually delivers about 85 percent of annual profit, and it was somewhat positive about a solid end to the year.

Commenting on the first half results in September, Verdict Retail Research said that House of Fraser’s investment in all sales channels continues to support like-for-like sales, with online turnover reaching 20.7 percent of total sales, and store refurbishments and modernized shop-fits providing consumers with a more “premium and aspirational experience.”

Verdict noted that the second half got off to a weak start, with sales down 2 percent, reflective of the mild start to fall. “However, it is essential that House of Fraser holds its nerve and perseveres with full price trading to protect brand appeal and justify its premium positioning.”

The turmoil at House of Fraser is the latest at the U.K. retailer. Last spring, BHS and Austin Reed were both placed into administration, the U.K. equivalent of Chapter 11, within days of each other. Former BHS owner Sir Philip Green remains locked in a battle with U.K. pension authorities over the multimillion pounds hole in the pension fund.

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