- Vivian Hendriksz |
London - The curtain is set to drop on high street retailer BHS, as it stands on the brink of a collapse into administration. The retailer is expected to call in administrations on Monday, placing close to 11,000 jobs at risk after eleventh-hour talks with Sports Direct to save the chain failed to take root Sunday evening.
A statement is expected to be issued concerning “BHS’s future” sometime on Monday, as the retailer continues to struggle a year after it was sold off by retail billionaire Sir Philip Green for one pound to small consortium of financiers - Retail Acquisitions. Headed by Dominic Chappell, Retail Acquisitions was in search of emergency funding to turn the business around after securing a restructuring deal to cut store rent for a number of locations last months.
BHS on the brink of falling into administration
The high street retailer was in discussion with Sport Direct to purchase a number of its 164 UK stores at the time. However, it was understood that any buyer would only make a deal if it would not have to take on BHS’s 571 million pound pension deficit. The UK sportswear chain could have been the potential saviour to the struggling high street retailer, after Green, who remains one of BHS's largest lenders, refused to support a emergency cash-injection scheme lined up by Chappell.
As talks to secure a 60 million pound loan to keep the company afloat and launch a turnaround plan to save BHS failed to materialise, along with any buyers, BHS is predicted to file for administration on Monday. According to the Sunday Times, Sir Green has called in restructuring firm Duff & Phelps to oversee the insolvency.
An administration would place almost 11,000 jobs at risk, as store workers’ trade union Usdaw voices concerns for the future of BHS’s employees. “We are very concerned about speculation in the media that BHS is on the verge of going into administration,” said David Gill, Usdaw National Officer. “We are seeking urgent clarification from the company and urging them to change their attitude to trade unions and begin a dialogue with us at this difficult and worrying time for staff. We also urge the company to comply with the law, consult staff and Usdaw as the union for BHS workers on the future of the business.”
BHS fails to secure loan and find buyer to secure business turnaround scheme
Filing for administration would also place the 164 stores at risk, making it the worst insolvency witnessed on the British high street since Woolworths went under eight years ago. It would also mean that BHS’s pension deficit would be bailed out by the government back Pension Protection Fund (PPF). BHS has been in crisis mode for a number of weeks, despite creditors and landlords approving of its CVA proposals as it failed to bring in the 100 million expected from the sale of its Oxford Street stop and Sunderland site to Oxford &City Holdings.
Retail Acquisitions was in the midst of negotiating a 60 million pound loan from Gordon Brothers, which failed to follow through due to unfavourable terms, according to a source at the Telegraph, which would include paying millions of pounds in fees up front. The loan from the Gordon Brothers would have indicated that the debt BHS owes Sir Green would have been subordinated. Sir Green is said to have been supportive of the loan - as long as BHS managed to raise the intended 100 million pounds from its property sales - which it failed to do, therefore nullifying the deal.
At the moment BHS is said to have approximately 1.3 billion pounds in debts, including the 571 million pounds pension deficit. The high street retailers two pension schemes are currently undergoing assessment to enter the PPF, which would lead to many of the 20,000 members receiving a 10 percent cut in their benefits. Pension schemes would remain unaffected by an administration, according to Malcolm Weir, of the PPF, said: “Members of the BHS pension schemes can be assured they are protected.”
BHS: "A retailer that it out of time"
“Today’s failure of BHS brings to a close a long run period of decline which has seen the chain fall out of favour with British shoppers thanks to its failure to respond to changing tastes and the intensification of competition on the high street,” commented Neil Saunders, CEO of Conlumino, on BHS position. “Fifteen years ago in 2000, BHS attracted some 13.4 percent of all clothing shoppers through its doors. Although not all of these visitors would use BHS as their main store, many would buy one or two products – helping BHS attain a respectable 2.3 percent share of the clothing market. Last year BHS pulled in just 8.2 percent of all clothing shoppers with a 1.4 percent share of the clothing market.”
“Such a decline reflects the fact that even to its core, older audience BHS has become something of an irrelevance. The chain’s ratings on price, quality, value, and range have all fallen thanks to the rise of more compelling alternatives. Primark and the grocers have dominated attention for more basic product, while chains like TKMaxx have allowed more aspirational shoppers a chance to buy fashionable branded product at low price points. Even in the middle part of the market, the reinvention of ranges at Debenhams and M&S – while not perfect – have left BHS’s range looking increasingly dated and dreary…It is a firm that is out of step with modern consumer tastes, which lacks the finances to enact the major changes required. As such, it is now a retailer that is out of time.”