What's Gone Wrong at BHS and Could the High-street Chain Have Been Saved?

26 April 2016 -


High-street retailer BHS has filed for administration after seven consecutive years of losses, putting 11,000 jobs at risk

Jermaine Haughton

A fixture on UK high streets for 88 years, retailer British Home Stores (BHS) has filed for administration, leaving the future of its 164 shops and almost 11,000 jobs in the balance. It’s the largest retail crash since the collapse of fellow national treasure Woolworths in 2008.

Could managers have prevented this dramatic fall from grace and saved the firm’s fortunes?

Administrators Duff & Phelps’ declaration that they had "no alternative but to put the group into administration" highlights the parlous financial position the high street chain was facing. Despite BHS generating some one million transactions a week, the retailer has debts totalling £1.3bn.

It’s also battling a slump in retail sales, a hefty rent bill and, in the background, it has a huge pension deficit.

Only last month, BHS appeared to secure its short-term survival by persuading landlords to cut its rent by up to 75% at 87 shops through a company voluntary arrangement (CVA). However, shortly after the deal was announced, BHS management revealed it still needed to find £100m to continue trading and to pay staff wages.

Attempting to fill the black hole, the retailer sold its property assets, renegotiated contracts with suppliers and sought a £60m loan from private equity firm Gordon Brothers. But it failed to raise enough cash from the property sales – only £30m – and the deal with Gordon Brothers fell apart.

Moreover, the firm’s owners, Retail Acquisitions, a consortium of financiers and lawyers, who purchased BHS from Arcadia Group boss Sir Phillip Green for £1 last year, were unsuccessful in raising £160m in fresh capital to reverse losses.

This news comes as reports allege that Retail Acquisitions, led by Dominic Chappell, was paid up to £30m for a number of management charges, legal fees, interest payments, salaries and wages in the year between the department store’s sale and its collapse into administration.

Here’s how Jim Armitage, the London Evening Standard’s City editor, describes events: “Every turnaround suffers the odd bit of bad luck, but this battalion of misfortunes smells of incompetence.

“If you were feeling charitable, you could put Chappell’s misjudgements down to the eternal optimism of the entrepreneur. But a business can’t survive on hope alone.”

Efforts to find a new owner have also been largely fruitless, with reported talks with Sports Direct owner Mike Ashley breaking down.

One major stumbling block for interested bidders is, reportedly, BHS’s pensions deficit of £571m, which is far bigger than the scheme's assets. Although the high street chain’s pension scheme is currently being assessed for its savers to be compensated by the government-supported rescue agency, the Pension Protection Fund (PPF) and trustees already concluding that their members’ retirement incomes will have to be cut, the responsibility for a new buyer to ensure the payment obligations for roughly 20,000 pension holders are met is deterring potential backers.

According to the Financial Times, court documents filed by BHS this month estimate that £63m would be available to repay loans secured on its properties, if the group was liquidated. The report states Sir Philip is in line for at least £25m, in charges his Arcadia Group holds on BHS assets, leaving about £14m to pay other creditors, including employees and suppliers who are owed nearly £80m.

Past Managerial Mistakes

BHS’s current plight is rooted in over a decade of under-achievement. It has lost money in each of the past seven years.

In its heyday in the 1960s, BHS was a popular general store for customers looking to buy a range of different goods in place, and has a largely older customer base.

Faced with intense competition from the growth and popularity of e-commerce, particularly Amazon and eBay, and more fashionable bricks-and-mortar chains such as Primark and Ikea, BHS’s management has been accused of being too slow and inflexible in reinventing its brand to meet changing customer needs, attract younger customers and moving its business into a more profitable niche.

The strong clothing discounts provided by the likes of Primark, and the saturation of the homewares space by retailers such as Dunelm, Poundland and John Lewis have made it more difficult for BHS to stand out with new customers.

Honor Westnedge, the senior retail analyst at Verdict Research, has said: “BHS has lacked differentiation. It used to be the go-to place for affordable clothing and homeware but there are better, and cheaper, specialists now.”

When Sir Phillip Green purchased BHS for £200m in 2000, BHS attracted some 13.4% of all clothing shoppers and held a respectable 2.3% share of the clothing market. Last year BHS pulled in just 8.2% of all clothing shoppers with a 1.4% share of the clothing market.

In the early 2000s, the Arcadia Group boss’s energy and vision led to a short-term peak in performance from the retailer, but as the years passed, and his focus moved to other deals, such as a failed bid to takeover Marks and Spencer, the brand appeared to become complacent, failing to connect to the new generation of shoppers.

For example, one of BHS’s biggest assets is its large and well-positioned stores. But a lack of vision and push to modernise their retail spaces quickly made the company’s product offerings look increasingly dated and dreary, even compared to other middle of the market, traditional brands such as Debenhams and M&S.

Combined with a core customer base of Baby Boomers - while the millennial generation become more prominent consumers - this has meant that, despite being in high-footfall locations, BHS stores have increasingly failed to draw people in.

“This has not happened quickly. It has happened over many years. BHS has been losing money for five years and more,” said Richard Hyman, a retail consultant. “I think it has become progressively irrelevant and it is a massive challenge to change that.

“I think the place to start is with understanding the customer better and editing the offers to become more relevant. It doesn’t have a place on the high street as it is. It has to change. It will need to invest money in these changes. It is not rocket science. I wouldn’t like to put a number on it, but it is going to be really tough, they have a mountain to climb.”

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