Consumer credit slowdown weighs on House of Fraser

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The Independent Online

House of Fraser will miss out on a bonus £2m from its credit card partner because debt-adverse consumers have chosen to rein back their borrowings.

The department store group said it had seen a slowdown in the level of credit used by its customers, prompting some analysts to lop 10 per cent off their profits forecasts.

There was much better news on customers' appetites for Christmas shopping, which helped the group silence its critics by reporting a strong uplift in sales over the festive period. The increase did not come at the expense of its margins, unlike some of its rivals.

John Coleman, the chief executive, said: "We said in September Christmas would be better than people would be expecting and we were towards the top of the pack."

The company reported a 7.7 per cent rise in like-for-like sales during the six weeks to 7 January, a dramatic turnaround from the 7 per cent fall it suffered during the first eight weeks of its second half.

Some analysts had feared the group would be among the Christmas losers because it held a couple of early discount days to boost footfall, but it has proved them wrong. Shoppers flocked to House of Fraser for their gift ranges and women's accessories, Mr Coleman said. Strong sales of both product areas boosted the group's gross margin, which made up the ground it had lost in the first half.

Philip Dorgan, a retail analyst at Panmure Gordon, said it was "good news", but added: "There is a sting in the tail with the consumer's caution on debt meaning that the store card's book has seen a slowdown and penetration levels within sales are down."

Mr Coleman said: "Consumers are pulling in their horns a bit on debt and the savings ratio has gone up." He said GE Capital, which manages the company's store card scheme, was unlikely to pay a bonus this year or next. Some analysts had pencilled in a £2m bonus for the current year and £3m next year. After that, Barclaycard takes charge of the scheme and has already paid the company an upfront fee of £35m for the following three years.

Last year, House of Fraser acquired Jenners, the Scottish department store, and its smaller rival, Beatties. It took an unsentimental view of its store estate in London, shutting Dickins & Jones of Regent Street and Barkers in Kensington to the dismay of many shoppers in the capital.

House of Fraser shares ended up 1.25p at 111.5p.