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Harrods of the North enters new era with House of Fraser deal

WHEN John Coleman, chief executive of House of Fraser, contacted Robbie and Andrew Douglas Miller in December, he sensed he was close to finally fulfilling his ambition of buying their family’s famous department store - Jenners.

Word had reached him that Robbie, the store’s managing director, and his brother Andrew, deputy chairman and development director, might be willing to sell the business their family had bought in 1881.

HoF had had its eye on Jenners for several years, and the two companies had previously discussed merging, though the talks had come to nothing.

This time it seemed things had changed, and that the brothers had decided they had taken the business as far as they could.

Last week, Coleman was barely able to contain his delight when he revealed that talks were at an "advanced stage" to buy the iconic Edinburgh store, the Loch Lomond outlet and smaller units at Glasgow and Edinburgh airports.

The news came as a surprise and the value of the deal was not disclosed, though analysts suggested a price in the range of 40m to 100m, reflecting the store’s popularity with Edinburgh’s well-heeled residents and tourists. The deal is expected to be signed within weeks.

What happens next is unclear. Coleman said he would retain the Jenners brand for the "foreseeable future" and the store would stay on the existing site. He said: "Jenners fits really well with our portfolio. It is the upmarket aspirational store in Edinburgh, and that is what we are all about."

Jenners’ staff will not emerge from a takeover unscathed, although significant cuts to the company’s 750-strong workforce are not expected to take place in the near future. However, some back-office jobs are expected to be lost.

As compensation for losing its independence, Jenners will gain access to HoF’s large sales machine, marketing budget and supply and distribution chains.

Robbie, Andrew and their family can expect to share a multi-million-pound windfall. It is not clear if they will stay with the company, and neither would comment last week.

Some say it is surprising that Jenners has survived for so long as an independent in the cutthroat retail world. The company has faced increasing competition from rival retailers in and around Edinburgh in recent years.

John Lewis, which was refurbished in 2001, Harvey Nichols, which opened in 2002, and a number of upmarket clothes stores on George Street have tempted Jenners’ affluent clientele to shop elsewhere.

According to accounts for 2003 - the most recent full-year figures available - the company made pre-tax profits of 2.75m on sales of 39m. Profits came in between 4m and 5m in the 1990s.

Verdict, the respected research agency, believes HoF will be able to increase profits at Jenners. But it points out that the store’s operating margins are higher than HoF’s average - it yielded a 7.1% margin on sales of 39m in 2003, against HoF’s 4.4% average for the same financial year.

"The key for HoF in acquiring Jenners will be retaining its exceptionally strong identity as Edinburgh’s original upmarket department store," it said.

"There is no reason why HoF cannot operate two department stores in Edinburgh, providing they hold separate identities. Jenners will not be branded HoF and product mix will continue to reflect the needs of Jenners’ shoppers.

"Where HoF is likely to seek changes is in reversing the decline in profits. By leveraging its stronger buying power and merging some back-office functions, HoF should be able to further drive profitability."

City analysts responded to last week’s news positively, saying the deal was a good one for HoF, which has been forced to cut costs in recent years.

It recently closed four stores - in Paisley, Inverness, Bromley and Swansea - and has fended off takeover approaches, including a move from Scottish entrepreneur Tom Hunter.

HoF will get its hands on a profitable business - one of Scotland’s best-known retail names, with a loyal if predominantly ageing clientele - and a prime city centre property that is worth millions.

But HoF has problems of its own. Last week, it reported a leap in headline pre-tax profits from 37.9m in the year to January 29, 2004, to 56.5m in the same period this year. But the figures were flattered by property sales, which brought in 28.3m. Sales actually fell 6% to 649.6m. Retail spending in the quarter to February was 0.6% lower than the previous three months - the weakest growth rate in two years.

The deal also raises question marks about the possibility of a shake-up of retailing on Princes Street. HoF is known to be frustrated at the lack of floor space available in its Edinburgh store, and has toyed with the idea of moving to the east end of Princes Street.

Gordon Reid, chief executive of Edinburgh City Centre Management, a development company supported by the council and local businesses, said: "This may lead to a shake-up of Princes Street. Most people would agree Princes Street isn’t performing as it should be.

"House of Fraser needs more floor space. In acquiring Jenners, that has increased the floor space at a stroke."

 
 
 

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