Reviewed: 4th March 2016
British Home Stores (BHS) looks set to enter a Company Voluntary Arrangement (CVA) as part of a major overhaul designed to reduce the retailer’s overheads and re-establish its business on a firmer financial footing.
Expectations are that the process will see the department store chain, which employs close to 11,000 people nationwide, shed several hundred jobs across its operations with the potential for dozens of its outlets to be closed and further jobs to be lost.
At the heart of the CVA and the turnaround plan from the point of view of BHS’ investment group owners Retail Acquisitions will be reaching agreements with landlords to reduce their rents.
The planned restructuring of the business will see rent reductions sought in relation to 87 outlets, with very substantial rent reductions to be sought in relation to 40 of those stores.
BHS currently has 164 stores around the UK with only 77 of them being left unaffected by the CVA and negotiations with landlords.
“The company needs to secure at least 75 per cent creditor approval for these CVAs,” explained Will Wright, a restructuring partner at KPMG, who is supervising the CVA and advising BHS’ owners.
“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,” he said.
Darren Topp, BHS’ chief executive, said in a statement: “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.”
Pre-tax losses worth around £85 million were recorded for BHS in the most recent tax year, with its former owner Sir Philip Green and his Arcadia group selling the business last year to Retail Acquisitions for a sum of just £1.
A deal between the company’s new owners and the specialist lenders of Grovepoint Credit last year resulted in the creation of a £65 million debt facility that Retail Acquisitions is hoping will help it turn around what remains one of the better known names on the British high street.