House of Fraser owner confirms plan to sell controlling stake
today Mar 6, 2018
House of Fraser’s Chinese owner is planning to sell its majority stake in the under-performing department store chain to another Chinese entity, it confirmed on Tuesday. But it said it would retain a significant holding in the retailer.
Nanjing Xinjiekou Department Store Co (also know, as Nanjing Cenbest) will sell a 51% holding to tourism development company Wuji Wenhua. But its total stake is currently 89% and it will hold on to the remaining 38%.
But doesn’t Sanpower Group own the under-pressure chain? Well yes and no. Sanpower is the biggest stakeholder in the business as it has a 27.32% holding in Nanjing Cenbest.
The latter business acquired the chain in a 2014 deal valuing it at £450 million. At the time it planned to replicate the HoF model in its domestic market and open a chain of up to 50 stores in China. But it has only opened one in the intervening years.
In a statement on Tuesday afternoon, Nanjing Cenbest said it was in “advanced discussions” with Wuji Wenhua. It added: “Although [we] are still in discussions, we believe that Wuji Wenhua can be a strong strategic equity partner as they possess vast experience in the leisure sector and have access to a large network of travellers.”
That traveller link is particularly important given the impact the Chinese travelling public has had on retail in recent years, both in the domestic market and abroad.
The move to reduce its HoF stake comes as Sanpower has directed Nanjing Cenbest more toward healthcare in recent years.
But while it keeping a HoF stake means an ongoing commitment to consumer retail, it’s undeniable that its investment hasn’t been the cash cow it could have been.
House of Fraser has struggled and recently reported that its Christmas trading period was slower than hoped for.
It had refused to make the heavy markdowns that rival Debenhams did in order to drive sales and that meant Christmas season turnover dropped 2.9%. The firm has since kicked-off negotiations with landlords to try to get rent reductions on some of its 59 stores in Britain.
Interestingly too, Sports Direct chief Mike Ashley owns a minority stake in House of Fraser. But it’s unclear whether he would seek to increase his holding. His department store focus at the moment appears to be Debenhams with his stake in that chain having almost reached 30% and the two businesses establishing a closer partnership.
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