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What went wrong at House of Fraser?

Colliers International

News that House of Fraser is to close more than half its 60 UK stores, putting 6,000 jobs at risk, sadly comes as no surprise to many following the fate of the UK retailers including Colliers’ own Business Rates team.

In the West Midlands, House of Fraser management announced closures of the 128-year-old Birmingham store, formerly known as Rackhams in Corporation Street, 141-year-old Beatties in Wolverhampton and the department stores in Shrewsbury and Telford.

Only two House of Fraser stores will be left in the West Midlands- Solihull and Sutton Coldfield, the former because it has a different legal management and was not part of House of Fraser’s CVA proposals. The closure of these stores will result in over 1100 job losses in this region alone.

So, what went wrong? Why was House of Fraser not able to get its CVA to work in round one?

Like many other retail brand names House of Fraser has suffered from the competition from the online retailers, uncertainty over Brexit, wavering consumer confidence, rising inflation and costs and the rise in the national minimum wage impacting on the cost of staff. These factors and high rents have made costs for those retailers with physical stores unpalatable.

And their business rates liabilities have not helped. Like other retailers, House of Fraser experienced the negative impact of the 2017 Rating Revaluation, which substantially added to its costs. An analysis of House of Fraser’s 60 stores in England and Wales, revealed that the company faced a business rates bill in 2017/18 of around £38m and this would have been rising to £40.3 m in 2018/9.

Moreover, some individual stores saw big rises following the 2017 Business Rates Revaluation. The H of F store in Oxford Street, for example saw a RV (rateable value) increase of over 57%, from £5.73 million to £9.01 million following the revaluation and the Milton Keynes store was not far behind with a RV increase of nearly 52% to £1.38 million. Unsurprisingly these have been named as two of the 31 stores being closed.

In terms of actual rates paid this means that the Oxford Street Store alone saw a rates bill of £4.3 million in 2017/8 compared to £2.96 million 2016/7, a rise of nearly 46%. And this figure was on its way up further, given the Government’s 5 year transition scheme. By 2021/22 House of Fraser, Oxford Street would have been paying business rates of over £5 million a year. A massive bill for one store alone.

It is no wonder House of Fraser had to shut stores and is trying to reduce its rent bills and even cut its store sizes in some areas. As business rates are tied to rental values, it would be mad not to.

Looking at stores in the West Midlands, we see a similar pattern arising.  Colliers has estimated that the store in Birmingham had a business rates bill of over £1 m in 2017/18 rising to £1.11 m in 2018/9 and continuing to rise reaching £1.2 m in 2021/22. As the biggest House of Fraser store outside London, at half a million square feet, this would be a big bill to cope with year on year.

And while the Beattie store in Wolverhampton is thought to have seen a slight reduction in its business rates bill, an annual bill of nearly £500,000 a year is still punitive in today’s retail climate and will have added to House of Fraser’s decision to close it.

Even those stores in other parts of the country that should have seen a decrease in their rate bills following the Revaluation, were not helping the corporate rates burden much. The policy of phasing in reductions, whereby it takes five years of transition until businesses in England are allowed to pay their business rate bills at the new revalued levels, has meant that many retailers, such as House of Fraser have been paying much more than they should be.

House of Fraser is obviously not alone in its business rates plight.  Debenhams, Toys R Us, Laura Ashley, Marks and Spencer, even John Lewis - the list of retailers with uncomfortably high business rate bills is never ending. It is no wonder the cracks in the system are growing.

Unless something is actively done to help the physical retailers, we will see a significant change on the high street landscape as these great names falter. In Birmingham there are concerns about who will come to Corporation Street to shop without House of Fraser as a draw. Elsewhere marginally successful towns could go into terminal decline.

The Government really needs to do something. Business rates are basically a 50p tax in the pound tax.  Let’s have a proper review aka Ken Barclay in Scotland, let’s look at reliefs and find a way of keeping the multiplier down, without causing a Government a loss of income. And let’s sort out the appeals system, currently a myriad of confusion and uncertainty..

House of Fraser isn’t the first store to announce closures. And unless something drastic is done, it certainly won’t be the last!

Colliers Manifesto for Business Rates Reform: 

  1. Increase funding for VOA in order to deal with existing appeals’ backlog;
  2. Release VOA from pressure exerted by local councils and HM Treasury;
  3. Introduce a register of appeals professionals – removing the ‘cowboy’ element;
  4. Root and branch reform of current business rates exemptions and reliefs.