Another venerable British retailer: House of Fraser has run into difficulties. In early January 2018 it reported very poor sales. It also announced that it would have to rethink its overall strategy, particularly with respect to its physical stores portfolio.

This should send warning signs to us in terms of the on-going challenge for traditional “bricks and mortar” retailers grappling with online channels and the ever-growing threat from that quarter.

House of Fraser is rapidly looking like the House of Cards. It has around sixty stores in the UK, most notably iconic locations in Glasgow and Edinburgh. Around one-third of these Department Stores are reported as being unprofitable. Hence the need to rapidly rethink the extent of their continued presence on the high street.

Without meaning to sound like a long-playing record, it once again the highlights challenges of remaining relevant and competitive for Department Stores such as House of Fraser in light of the changing way in which shoppers now engage with retailers.

In 2014 it was acquired by the Chinese conglomerate, Sanpower.

The ongoing problems in the early months of 2018 were exacerbated by the rumours of closures of stores such as the one in Belfast.

C Barrier, the owner of Hamleys toy stores is about to become a new majority shareholder.

In March, Sanpower agreed to inject around £15million into revitalising the stores and the online channels.

Another bellwether of the retail scene in the UK appears to be going the way of others, such as BHS. A familiar story with a potential familiar ending perhaps.

It is also seeking Company Voluntary Arrangement (CA) with its creditors in order to extricate itself from the crippling debts that it has developed in the last couple of years.

This is an interesting and well-worn route for many companies in a similar position the House of Fraser. Essentially it involves a binding agreement with creditors to allow a proportion of its debts to be repaid over an agreed time period. It needs seventy-five per cent of the creditors to agree to this before it becomes a legal agreement. Conveniently in the case of the House of Fraser it provides a mechanism for renegotiating rent agreements with landlords.

We should pick up on this because sky high rents are proving to be the bane of “bricks and mortar” retailers in the face of competition from online retailers, who are not hidebound by such crippling costs. In the case of the House of Fraser, the ability to get a CVA from its creditors, particularly its landlords is problematic. They are becoming increasingly cynical about the ease with which retailers can escape legally acquired debts: thus leaving the landlords with little option but to accept the revised repayments. In the UK, the rental problem has been heightened by the practice of long leases being employed by landlords and upward renegotiations of such leases in terms of price increases.

The other “elephant in the room” relates to the increases in business rates announced more than two years ago. While this has had significant repercussions for small independent retailers, hefty increases are now beginning to bite into the cost structures for much larger retailers with multi-sites across the country. Another nail you might say in the “coffin” for such operators.

House of Fraser has set a goal of removing around thirty per cent of its physical space. We can expect to see a major rationalisation of its stores. Because of the scale of its operations – it currently employs around 6,000 people, the implications for them and retailing in general look to be pessimistic over the coming months. At present its annual build for leases and rents comes to around £140 million. This is a serious millstone to have hanging around its neck. It makes it less agile than its online competitors for starters.

One feels that any future investment by the new majority shareholder, C Banner is dependent on the CVA going through. As noted earlier this is far from being a certainty at present.

Lest we lapse into nostalgia for the Department Stores, it is not all down to an uphill struggle against the spiralling costs of business rates and rental agreements. Sluggishness in the market in terms of people not spending as much as before is also endemic to the overall retail sector. We have witnessed a fifteen per cent fall in the pound since the vote on Brexit in 2016. Inflation has risen to over three per cent – one per cent higher than the target as laid out by the UK government.

Put simply there are too many outlets on the high street. With over twenty per cent (and rising) of market share held by online players in the UK, this over-capacity will have to be addressed by all of the “bricks and mortar” stores sooner rather than later.

While I do not believe that we will see the elimination of the need for a physical presence, there is a chronic need for readjustment of the portfolio of stores.

I also believe that that is not enough. Retailers such as House of Fraser still have a role to play. I believe that it was close at least one-third of its current portfolio of physical stores.

The real question is should be addressing now is what do we do inside the remaining stores?

We have preached the importance of fully embracing the importance of experiential marketing and the need to redefine the purpose of physical stores and what they offer to the shopper. In the Department stores such as the House of Fraser is it enough to attract a range of well-known brands into concession areas and hope that this will pull people into the stores? I think not. Shoppers can now access brands such as Jo Malone across many different retail channels. They might “pop in” to the House of Fraser to see the new lines and categories but will (in many cases) make their purchases from other retail channels offering a better price.

To be fair to House of Fraser it has shown some degree of innovation since being acquired by Sanpower in 2014 with respect to its digital marketing strategy.

It has introduced digital mannequins and I-Beacon technology into many of its stores. It has updated its app and it has set itself a target of generating fifty per cent of its sales from digital channels.

Back to the physical stores! Space is space. Does it matter who uses this space? It does not have to be exclusively used (in this case) by House of Fraser. Why not use such space for gyms? Personal trainer facilities? As long as there are companies out there prepared to pay for the use of such space then it generates revenue and (if handled properly) can turn a cost into a revenue generating stream for the retailer.

Will House of Fraser survive? I believe a slimmed down version (in terms of physical outlets) allied to imaginative use of space and a revamped omni-channel strategy will lead to a rejuvenation in fortunes. However they have to move quickly and make hard decisions. Some iconic stores may have to go such as the location in Edinburgh. It has to avoid becoming nostalgic and maudlin (hard-nosed new shareholders will not allow this to happen). It will have to fully embrace the wider notion of entertaining shoppers and re-defining what goes on within the store.

Let’s see what happens in the coming months.



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