Thousands of jobs at risk as BHS seeks rent cut for viable stores
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The owners of struggling British high-street retailer, British Home Stores (BHS) may have to shut a quarter of its current stores if landlords are unwilling to work with them on a rescue deal to lower store rental fees, which places numerous jobs at risk. Together with advisor KPMG, BHS has proposed a radical restructuring of its store estate in order to keep viable stores open.
The high-street retailer filed a company voluntary agreement (CVA) on Thursday to try and renegotiate rental deals on half its 164 stores, which would no longer be viable if they were unable to negotiate rent reductions. CVA, a court-supervised insolvency process, would allow BHS to shake off some of its liabilities, if three-quarters of its landlords agree to the proposal. The rental proposal would see 77 of BHS most viable stores rent remain unaffected, but 47 stores are said to be viable only if their monthly rent price is cut by 50 to 75 percent as the retailer believes it is paying more than the current market rates for a quarter of its stores.
BHS applies for CVA in the hopes of renegotiating rental fees
The remaining 40 stores are set to trade for a minimum of 10 months, whilst discussions are being held with landlords to reduce rents substantially. However, if BHS owners, Retail Acquisitions, are unable to come to an agreement with the landlords, then a number of these stores will be shut, although the retailer hopes to keep its store closure amount to a minimum. During this time BHS will pay 25 percent of the rent due on the stores, said KPMG. BHS proposal for a CVA comes close to a year after Retail Acquisitions bought BHS from its former owner Sir Philip Green’s Arcadia Group for the token sum of one pound.
“The CVA proposal that we have announced is a necessary milestone in resetting British Home Stores to ensure its long-term future as an iconic British retail brand,” said BHS’s chief executive Darren Topp in a statement. “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.” BHS added that a successful CVA would allow the retailer to reset its property portfolio by realigning its rents to the market level and cutting loss-making stores where necessary.
In addition to the CVA, the retailer is also looking to reset its cost base, a move which includes a head office restructure, as well as a consolidation of management levels in the store - another step which is set to result in even more redundancies. BHS placed 150 of its 450 head office positions into consultation on Friday morning in a bid to cut its costs and the high-street retailer also plans to cut approximately 220 management roles into stores by merging two tiers of management into one, reported Drapers.
“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,” added Topp. BHS will continue to trade as usual and we thank our staff and customers for their continued support.” BHS turnaround includes the renewal of the stores additional offerings, such as its cafes and restaurants, adding a convenience food offering as well as improving its in-store visual merchandising. The high-street retailer also aims to launch a new and simplified product range and revamp its website to improve its digital offer.
BHS noted that the CVA proposal would not impact any supplier of goods or services to the company and that it remains in active discussions with creditors to tackle its pension deficit of 207 million pounds, which remains a barrier to its turnaround. "Rebuilding British Home Stores to ensure a long term future on Britain’s High Street, internationally and online is the Group’s main goal," said BHS in a statement. "By resetting costs and refocusing its offering, the company will seek to rebuild its position in the minds of customers through investment, innovation and passion."
"Together these initiatives will help to secure the long term financial future of the Group and return BHS to its rightful status as an iconic, successful British retailer."