House of Fraser suitor Galeries Lafayette plans to take the department store group more upmarket if it proceeds with a bid for the UK retailer.

It is understood that the French department store group would invest heavily across House of Fraser’s entire store estate, including its many provincial stores.

Privately owned Galeries Lafayette hopes to use its clout with luxury fashion labels to build House of Fraser’s brand proposition. It is thought it will also invest in House of Fraser’s private-label brands, which have been a driver of the retailer’s growth.

Last week House of Fraser reported that like-for-likes edged up 0.8% in the third quarter to October 26, driven by private-label sales, which climbed 4.6%.

The two department store groups are understood to be in advanced stages of exclusive talks. Any deal could be complicated by House of Fraser’s ownership structure.

Collapsed Icelandic investment firm Baugur owned a 49% stake, which is now held by the administrators of failed national bank Landsbanki. House of Fraser chairman Don McCarthy and his family speak for 20% of voting shares, while retail entrepreneur Sir Tom Hunter holds an 11% stake and All Saints founder Kevin Stanford has 10%.

However, House of Fraser is also pursuing plans to potentially float on the London Stock Exchange and is running a dual process while the talks continue with Galeries Lafayette.

The retailer has hired Rothschild to manage the process and has been holding a beauty parade of advisers in recent weeks. McCarthy is understood to be seeking £450m for the group.

Earlier this year, House of Fraser attracted the attention of Sports Direct founder Mike Ashley, who was eyeing a minority stake. The department store group has also previously held talks with Qatari investors.

Galeries Lafayette, which has 65 stores globally, is wholly owned by the Moulin family. In 2012, the group reported consolidated revenue of $3.2bn (£1.95bn) and Planet Retail forecasts sales in 2013 will rise to $3.4bn (£2.07bn).

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