As I See It
Bhs crisis looks like a re-run of Woolworths
There was a warning at the beginning of the week that almost a million jobs could be lost in retail by 2025. It looks like the first tranche could be axed some time soon unless loss-making Bhs sorts out its problems.
One of the best known brands on the high street, the chain is struggling to fend off the prospect of administration. As things stand, this looks like a re-run of the collapse of another one-time shopping fixture Woolworths.
Once known as British Home Stores – the name still emblazoned on the store in Princes Street, Edinburgh – it was sold by the retail tycoon Sir Philip Green for £1 to a group of investors under the name Retail Acquisitions which promised to breathe new life into it.
However, it received an early knock back when former Thomas Cook boss Harriet Green declined an offer to head the group.
Green, who you will recall took a £1 billion dividend from Bhs in the early days, said at the time of the sale that he was having it over “in a sound financial position with significant cash balances and banking facilities in place.”
Despite this, there was speculation even as the deal was being done that the new owner would quickly seek to sell it on. Instead, the consortium finds itself negotiating a company voluntary arrangement (CVA) with its landlords in a bid to reduce the rents on half of its portfolio in order to keep them open.
Without a deal it looks likely that up to 60 of the 171 stores the group acquired will be shut and several hundred jobs lost.
While weak trading is an issue for Bhs, many of these older brands have simply found themselves caught out with too many stores which are too big and unsuited to the modern era of direct delivery and click-and-collect shopping.
To make matters worse for Bhs, it is said that credit insurers have refused to support its suppliers, meaning the retailer had to pay upfront for stock.
A CVA allows a company in financial difficulty to reach a deal with creditors, including landlords, about reducing its liabilities. It must be approved by 75% of creditors at a meeting scheduled for 23 March. CVAs are controversial in the property industry because they allow a company to walk away from its lease obligations.
It is understood that about 80 stores of the current stock of 164 are viable and unaffected by the CVA, while the rest need sharp cuts in rent in order to survive.
The management wants cuts of up to 75% and the dilemma for the landlords is what they would do with these large format outlets if they refuse.
The company lost £85m in its last financial year and it also has to resolve a £207 million pension deficit. London investment group Grovepoint Capital provided a £65m loan last year, on top of £10m from Gordon Brothers, an American company known for restructuring struggling businesses.
Darren Topp, Bhs’s chief executive, described the CVA proposal as “a necessary milestone in resetting British Home Stores to ensure its long-term future as an iconic British retail brand..”
He said:’ “Some of our stores are loss making as we are being charged rents that are too high relative to today’s market. The CVA will address this issue.”
He sounds confident of doing a deal. Some of his staff, however, may be a little less optimistic.