Job fears as retailer BHS seeks to agree rent cuts with store landlords
09:44 04 March 2016
Hundreds of jobs are under threat after a warning from High Street retailer BHS that 40 of its stores will be unviable unless landlords agree to reduce rents “substantially”.
BHS is proposing a Company Voluntry Arrangement (CVA) under which the landlords of a further 47 stores are also asked to accept lesser rent reductions, with only 77 of the retailer’s 164 outlets deemed to be viable at their current rent.
BHS (still officially named British Homes Stores although its shop fascias now carry the abbreviated version) embarked on a turnaround plan following its acquisition a year ago by a group of city investors from retail tycoon Sir Philip Green, who reportedly sold the loss-making business for a nominal £1.
In a statement today, the chain said that although some property costs had already been reduced through exit or renegotiation, it was “esssential” to address other lease agreements under which it was was contracted to pay rents in excess of current market rates.
Chief executive Darren Topp said: “The CVA proposal that we have announced today is a necessary milestone in resetting British Home Stores to ensure its long term future as an iconic British retail brand.
“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.
“Although a difficult process to go through, this sets in motion the comprehensive updated turnaround plan that we have identified, and gives British Home Stores a secure financial footing from which to grow and deliver sustainable profitability.
“BHS will continue to trade as usual and we thank our staff and customers for their continued support,” added Mr Topp.
BHS, which is understood to have around 8,500 direct employss plus about 1,500 contract staff, is also planning to reduce its cost base, through restructuring its head office and consolidating levels of management within its stores. and is simultaneously in discussions to address a pensions deficit.
However, the retailer, which was originally founded in 1928, says that the CVA proposal does not affect any suppliers or goods or services to BHS.
The leases on the BHS stores in Norwich, Great Yarmouth, Lowestoft, Ipswich and Chelmsford will all be unaffected by the CVA.
However, the company is seeking to agree reduced rents in Basildon (to 75% of the rate), Peterborough (75%) and Southend (50%), and the BHS store at the Grafton Centre in Cambridge is among those where a larger reduction is being sought.
Will Wright, restructuring partner at accountancy firm KPMG who is the proposed supervisor for the CVA, said: “For almost 90 years, BHS has been one of the most iconic brands on the UK high street, but in recent years has seen its profitability decline as it has sought to respond to changing customer behaviours, increased competition and the rise in omni-channel retailing.
“Today’s CVA proposals are one facet of a wider turnaround plan, and specifically tackle one of the business’ largest fixed costs, the onerous lease arrangements across its UK-wide store portfolio.
“While the company’s store estate is located across favourable retail locations, a number of these leases are unsustainable, predicated on terms which were originally negotiated some decades ago.
“With the support of its lenders, shareholders and landlords, the company will be able to reshape its debt and operational structure to a model more suited to today’s multi-channel retail environment. The company needs to secure at least 75% creditor approval for these CVAs,” he said.
Brian Green, another restructuring partner at KPMG and the second proposed supervisor, added: “BHS currently has a total of 164 retail sites across the UK. Importantly, none of these stores will close on day one, and suppliers will continue to be paid on time and in full.
“The landlords of a total of 77 of the most viable stores will be retained at current rents which will be paid monthly as opposed to quarterly for three years. A further 47 stores have been identified as being viable at a reduced equivalent monthly rent of either 75% or 50%.
“The remaining 40 stores will continue to trade for a period of a minimum of 10 months whilst negotiations with landlords are undertaken to reduce the rents substantially. Where rent reductions are achieved, these stores will remain open. It is hoped that the store closure number will be kept to a minimum.”