Five hundred jobs are threatened by the closure of the Regent Street institution that, it was confirmed yesterday, will cease trading next January. House of Fraser, the store’s owners, hope that at least some staff may be deployed to the group’s other retail outlets in the capital, which employs 2,000 with a high turnover, but there are still fears of widespread redundancies.

Employees were stunned by the news yesterday. One said: “They managed to keep the whole thing secret, and now we have only a matter of months to find a new job. We have been treated very shabbily.”

The downturn in high street retail spending was the final straw for a business that has been losing money for the past three years. Its owners blame a substantial rent increase imposed in 2002 by Legal and General Insurance, landlords of the prime West End site.

The developers Shearer Properties and Delancy Estates are to take over the lease and plan a series of small ground-floor shops, with flats and offices above. Sources said that the venerable store’s image was too old and stuffy, and had failed to keep up with retailing trends, being overshadowed by Liberty, its successful neighbour, and increasingly challenged by cutting-edge retailers, such as Apple, that have given Regent Street a sharper flavour.

Dickins and Jones has branches in Richmond, southwest London, and Epsom, Surrey. House of Fraser said that they were unaffacted and would continue to trade.

The store’s website, which invites customer comments, is a mixed bag of reviews. There are numerous complaints that the shop never answers its telephone, but others praise the Dickins and Jones personal shopping team, which advises big spenders, and think that the doorman on the Regent Street pavement adds a touch of class.

John Coleman, the chief executive of House of Fraser, said: “It is with considerable regret that circumstances have forced us to come to this decision. We do, however, have a recently refurbished store in Oxford Street.” In the finest retail jargon, House of Fraser said that “a reluctance among householders to spend on big-ticket items has left like-for-like sales in negative territory”.

House of Fraser has 52 stores across the country, including prime outlets in London, Nottingham, Edinburgh, Birmingham and Reading. Recently it embarked on a policy of erasing traditional names it inherited, including the Army and Navy Stores in Victoria, Central London. Ultimately, most of its outlets will be known simply as House of Fraser.

Recently the group surprised the retail industry by acquiring Jenners of Edinburgh, a Scottish institution said to be the oldest independent department store in the world. House of Fraser said that it was pleased with the integration of Jenners, whose main store is the best-known shop in Princes Street.

Dickins and Jones traces its origins to 1803, when Thomas Dickins and William Smith opened a linen drapery shop at 54 Oxford Street, with a golden lion trademark. It moved to Regent Street in 1835, and changed its name in 1856 when Dickins died and John Prichard Jones joined as a partner.

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