Landlords have accused BHS of trying to “put a band aid on a femoral artery wound”, saying that drastically cutting rents may not save the business.
Store owners expressed anger yesterday at news that BHS had entered into a company voluntary arrangement on Thursday in an attempt to slash rents on half of its 164-store estate. Institutions and property companies including Intu Properties, British Land, Ellandi, Scottish Widows, M&G and the British Steel Pension funds will be affected by the move.
One landlord said: “This CVA is likely to pass as we don’t have much choice and it means we won’t get an empty rates bill, but I don’t think that in 12 months’ time it will make any difference.
“If you were to ask me if I would place a bet that BHS will eventually go [under], the answer is probably yes. The real issue is whether their products are good enough in a very competitive market.”
BHS, which has been working with KPMG, has drawn up a proposal asking for rent reductions on 87 stores. A CVA is a legally binding form of insolvency that allows a business to restructure its lease liabilities in a compromise agreement with its creditors. Another landlord said that it was unhappy that BHS’s senior operational team, including Darren Topp, the chief executive, had no personal investment in the business while he was expected to take a “serious haircut on rent”.
Advertisement
He said that although he had only a small exposure to BHS and his vote would carry little weight, he was still going to object to the CVA. “We don’t want to halve our rent, as our view is BHS is going to go pop, anyway, so we may as well get as much rent as we can until that happens. And the management team have no stake in the business at all. So where is their incentive to make this work?”
The CVA document reveals that the BHS senior management team will be given 10 per cent of the equity in BHS group, but only once the CVA and management changes are completed.
BHS said that it had to slash its rents because otherwise it would not meet its working capital requirements beyond the next rent quarter day this month.
In addition to the CVA, it has begun a restructuring programme that could result in the loss of up to 350 jobs. It is expected that 150 jobs will go at BHS’s head office, while about 220 in-store mid-tier management positions will be removed.
The department store retailer has already cut its senior operational team by 35 per cent.
Advertisement
Mr Topp said this week: “We have to sort this business out to give us a more confident and bright future. We have done loads of initiatives in the past 12 months and we are seeing the benefit of that, but what is dragging the whole thing down is that we just have these uneconomic rents.”
He said that agreeing an arrangement with the trustees of the company’s pension fund was also a critical priority and he hoped to conclude those negotiations soon.
“We are not trying to shirk our responsibilities here,” Mr Topp said, “but against often-competing demands we are trying to do what is in the best interests of both the pension fund and BHS. Everyone wants a stronger, better BHS as a better BHS works for everybody.”
Sir Philip Green’s Arcadia Group, the owner of Topshop and Dorothy Perkins, sold BHS for a nominal £1 last March to the consortium Retail Acquisitions.