House of Fraser’s radical plan to shut more than half its UK stores and secure rent reductions on others is aggressive. This is a company that reported an operating profit of £19.8m in the UK and Ireland in the financial year to January and would be better placed to attempt reinvention if had not accumulated so much debt – £390m at the last count. Last year, £18.7m was spent on interest payments.
Staff whose jobs are on the line are entitled to be angry. Many factors explain HoF’s distress – soaring business rates, the rise of internet shopping and the squeeze on disposable incomes – but management failure over many years is also high on the list. Not every retailer finds itself in the same mess. HoF, currently under the remote control of Chinese group Nanjing Cenbest, looks to have been overborrowed, undermanaged and short on long-term ideas.
In the circumstances, you can understand why some landlords are also fuming about HoF’s company voluntary arrangement (CVA), the means by which the group is trying to escape its full rental obligations and emerge as a smaller business. The British Property Federation, the landlord industry group, did not directly accuse HoF of abusing the process but the timing of its call for a government review of CVAs to prevent “misuse” was probably not a coincidence.
In one respect, landlords have only themselves to blame on CVAs. In the go-go years, they locked tenants into long leases with inflexible upward-only rent clauses. Now the retailing winds have changed direction and the country requires fewer shops, landlords cannot be shocked at the results. Rents are resettling at lower levels and CVAs can be viewed as just a fast form of adjustment.
Yet the landlords make a fair point when they say the CVA lark can lack basic fairness. As originally conceived, CVAs were meant to be used as a last resort as part of a wider corporate restructuring. In HoF’s case, the banks and bondholders are not being asked to take an upfront haircut. Why not? If they were, perhaps more stores and more jobs could be saved.
It may be tempting to dismiss the landlords’ arguments as the self-interested bleats of anonymous financial institutions. Remember, though, that the landlord interest is dominated by a lot of pension fund money. The rush of CVAs from overborrowed retailers is a real problem.
Can Ofwat plug Thames Water’s leaks?
Is regulator Ofwat, with its new chief executive, Rachel Fletcher, at the standpipe, finally getting tough with water companies for missing leakage targets? Well, up to a point. Thames Water is coughing up £120m in penalties and payments, which is the biggest headline package of remedies Ofwat has ever unveiled, even if the rebate only works out at £15 per customer over two years.
A record whack seems entirely in order. Thames did not just miss its leakage targets, it was not even close to meeting them. Reading between the lines of Thames’s mea culpa, the company outsourced an essential job in a hurry and did not police its contractors thoroughly.
Yet Ofwat can do nothing about the fact that Thames’s former chief executive Martin Baggs, the man in charge when the rotten outsourcing system was adopted, departed in 2016 with a £1.4m payoff.
One line in Thames’s statement about how it will do better in future is hilarious: “In addition, senior managers will only be rewarded for reducing leakage when targets are hit.” So, you were previously rewarding failure to hit targets? That may have been the real problem.
Amazon may experiment with football tactics
Here it comes, Amazon’s big splash into the world of Premier League football rights. Actually, it’s more of a dipping of a toe into the water. Jeff Bezos’s creation will screen 20 matches a season for three years, and there is a novelty element to the package it has secured – the right to stream all 10 games over one bank holiday weekend and over one midweek set of fixtures.
Sky and BT Sport will not tremble in fear if that remains the extent of Amazon’s ambition when the full set of rights come up for grabs next time. It still remains hard to see how, as things stand, Amazon could drive sufficient new subscribers to its Prime service to justify paying up to £9m per game, which is the effective price in some of the top TV packages.
Yet Amazon loves to experiment – and rarely does so unless it has a long-term strategy in mind. It will now get to play with the technology for three years and see what works. It may also be hoping that its mere presence will intimidate rivals in the next auction. In three years’ time, would BT’s investors really sanction yet more football if Amazon is on the prowl?
