What next for British Home Stores?

March 23, 2016 12:30 am Published by

What next for British Home Stores?

  • 23 March 2016
  • From the section Business

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BHS: A stalwart on Britain’s High Streets for 88 years, but its future is increasingly in doubt

It is crunch time for one of the UK’s best-known High Street names, the troubled department store, British Home Stores (BHS).

Its creditors will vote on Wednesday on a deal it desperately needs to cut the rent bill for its 164 UK stores.

The loss-making retailer currently has debts of over £1.3bn, including a pensions deficit of £571m.

BHS was bought by billionaire Sir Philip Green for £200m in 2000, but he sold it last year for just £1.

It is now owned by Retail Acquisitions, a consortium of financiers, lawyers and accountants.

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High Street competitors like Primark have proved a major challenge for BHS

BHS – which has been loss-making for seven years – wants its creditors to agree to a Company Voluntary Arrangement (CVA).

In effect, this is a compromise financial deal which depends on them accepting reduced rents.

Otherwise BHS is likely to end up in administration, placing the jobs of its 10,000 workers at risk.

Cutting rents

BHS says a deal to cut its rental costs is vital in order to turn around the loss-making business.

“Although a difficult process to go through, this sets in motion the comprehensive updated turnaround plan,” says its chief executive, Darren Topp.

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In 2000 billionaire Sir Philip Green bought BHS and made it part of the Arcadia Group, then the UK’s second-largest retail empire, but was not ultimately able to stem its losses

The retailer has divided its stores into three groups – depending on their profitability.

For 77 stores the rents it pays will remain unchanged, while for 47 stores BHS is “seeking a reduction in rent to market levels”.

Its least-profitable 40 stores will continue to trade for a minimum period of 10 months while talks go ahead “to reduce rents substantially”, says the retailer.

At Wednesday’s meeting BHS needs 50% of its landlords and 75% of its creditors to agree to the deal.

However, Julie Palmer, retail analyst at insolvency experts Begbies Traynor, says BHS is confident it will get an agreement.

“It is passing the buck essentially to the landlords – with promise of a reduced but continued rental income for the next 10 months.”

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BHS is hoping to avoid the fate of its High Street competitor Woolworths, which shut down in 2009

Mr Topp said a deal would give BHS “a secure financial footing from which to grow and deliver sustainable profitability”.

BHS is also in talks to address its pension deficits with the Pension Protection Fund, the government-supported rescue agency, as well as the Pensions Regulator and the BHS pension trustees.

BHS insists that it continues to meet its pension payment obligations.

But in BHS’s CVA submission, the retailer’s directors are clearly hoping that the two pension schemes will be transferred into the PPF and that the company would have no further liability to fund it.

Yet even if landlords agree a deal, BHS warns that it needs extra funding to trade beyond 25 March and it is trying to raise £100m.

BHS: A history of a High Street stalwart

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British Homes Stores first opened for business in Brixton, south London in 1928

  • 1928: A group of American entrepreneurs set up British Home Stores. The first store is in Brixton and nothing in the store costs more than a shilling (5p) – double that of rival Woolworth’s maximum price of sixpence
  • 1929: BHS raises its maximum price to five shillings (25p) allowing it to sell home furnishings, including drapery
  • 1970: The firm expands steadily in the postwar era – by the beginning of the year it employs some 12,000 workers in 94 stores across the UK
  • 1985: BHS begins to franchise its brand to stores around the world, to which it supplies products and support
  • 1986: The store merges with designer Sir Terence Conran’s Habitat and Mothercare to form Storehouse Plc, and the “British Home Stores” name is replaced with “BhS”, then “Bhs” and eventually “BHS”
  • 2000: Retail billionaire Sir Philip Green buys BHS from Storehouse Plc for £200m
  • 2002: BHS becomes part of the Arcadia empire, controlled by Sir Philip, when he buys the clothing group and its Topshop, Dorothy Perkins and Burton brands
  • 2005: The store resurrects its “British Home Stores” branding, but it is losing ground to cheaper rivals like Primark
  • 2015: Sir Philip sells the loss-making BHS for £1 to Retail Acquisitions led by Dominic Chappell, writing off £215m of debts in the process
  • 2016: BHS begins an insolvency procedure to reduce its rents and transfer its pensions liabilities into the Pension Protection Fund, the government-supported rescue agency

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BHS has certainly tried to address its unfashionable image over the years: here TV presenter Holly Willoughby launches her bedding collection in 2013

‘Tired and old-fashioned’

Crucially a deal does not mean that BHS’s long term future is secured, says Julie Palmer.

“It buys them time, but the fundamental issues still remain.”

With increasing competition from retailers like Primark and the internet, the challenge for BHS is to bring in shoppers, she says.

“What do BHS do, that nobody else does? If you look at homecare, Next do that better; and if you look at clothing, then Marks and Spencer do it better.”

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BHS may have been around around a long time, but despite being well-known it has struggled to find a profitable niche for itself in recent years

The problem, says Ms Palmer, is that the BHS brand “is tired and old-fashioned and has not kept pace with the times”.

If BHS does eventually disappear, it would join its long-term rival Woolworths in failing to keep pace with a changing retail sector.

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This post was written by FSB News