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UK's House of Fraser to close 31 stores at a cost of 6,000 jobs

U.K. department store chain House of Fraser Group Ltd on June 7 announced the closure of 31 stores with the loss of 6,000 jobs as it seeks to restructure its business to secure a capital investment from an Asian company.

The closures represent more than half of House of Fraser's portfolio of 59 stores and include its London flagship store on Oxford Street, a prime destination for shoppers, especially tourists.

House of Fraser, which traces its roots to 1849, on May 2 reached an agreement to sell a 51% stake in the company to C.banner International Holdings Ltd., a Hong Kong-listed investment holding company whose retail assets include toy store Hamleys.

The deal, which would see C.banner invest in new shares with an aggregate cash subscription price of £70 million, is conditional on the implementation of a restructuring plan. Without a restructuring, the House of Fraser said it "does not believe it has a viable future," it said in a statement.

"The retail industry is undergoing fundamental change and House of Fraser urgently needs to adapt to this fast-changing landscape in order to give it a future and allow it to thrive," Chairman Frank Slevin was quoted as saying. "Our legacy store estate has created an unsustainable cost base, which without restructuring, presents an existential threat to the business."

In a challenging year for U.K. retailers, some big-name stores have disappeared from the high street, including Toys R Us, Maplins and Conviviality Retailing.

House of Fraser proposes reducing its network to 28 stores and relocating its head offices from Baker Street in London and Granite House in Glasgow to new locations. It will axe 2,000 jobs, cutting its workforce to 3,000, with the additional loss of 4,000 positions from its 12,500 concession staff.

Its restructuring plan is in the form of a company voluntary arrangement, or CVA, a formal process that allows U.K. companies to renegotiate their debts with creditors without the need to seek bankruptcy protection. The use of CVAs has increased in 2018. The Centre for Retail Research, based in Norwich, England, in a May 2018 report said six retailers were using CVAs to close 286 stores.

House of Fraser said it had held constructive talks with landlords and stakeholders. Its creditors are due to vote on the company's CVA June 22. Pending approval, it added that stores slated for closure would remain open until early in 2019.

The company reported unaudited adjusted EBITDA in the fiscal year ended Jan. 27, 2018, fell to £35.4 million from £63.6 million in the fiscal year ended Jan. 28, 2017. Gross transaction value fell to £1.23 billion from £1.31 billion over that period.

House of Fraser said its struggle reflected the changing nature of the U.K. retail market, including the increasing shift toward e-commerce rather than buying in store, uncertainty surrounding the country's departure in 2019 from the European Union, a process known as Brexit, and cost pressures from the national living wage, higher business rates, rents and utility prices.

Its profit margin had been hurt by unfavorable foreign-exchange-rate movements arising from Brexit. In a trading update for the 13 weeks to April 28, House of Fraser said its gross margin had contracted 350 basis points year over year to 32.8% from 36.3%.

Under its restructuring, it aims to create a smaller, higher-quality and more focused store estate and an e-commerce-led retailer offering a seamless multichannel proposition.