High street retail giant BHS has today called in the administrators after failing to find further funding or a potential buyer for the business, putting around 11,000 jobs at risk.
In what retail experts are calling the biggest retail collapse since Woolworths, international financial advisory firm Duff & Phelps has been appointed as administrator and attended talks this morning at BHS’s London headquarters.
In a statement announcing the move Duff & Phelps said that the directors have “no alternative but to put the group into administration to protect it for all creditors".
“The group has been undergoing restructuring and, as has been widely reported, the shareholders have been in negotiations to find a buyer for the business. These negotiations have been unsuccessful," continued the statement.
“In addition property sales have not materialised as expected in both number and value. Consequently, as a result of a lower than expected cash balance, the group is very unlikely to meet all contractual payments.”
BHS, which has overall debts of around £1.3bn, will continue to trade as usual whilst the administrators seek to sell it as a going concern.
Owner Dominic Chappell, whose Retail Acquisitions group purchased BHS from retail tycoon Sir Philip Green for £1 last year, wrote to staff yesterday to inform them that the company would enter administration today after attempts to find a buyer finally collapsed.
Informing staff that their wages for the month would be paid, former racing driver Chappell wrote: “It is with a deep heart that I have to report, despite a massive effort from the team, we have been unable to secure a funder or a trade sale.
“You all need to keep your heads held high," he added. “You have done a great job and remember it was always going to be very, very hard to turn around.”
The retailer had been in talks with several potential buyers about the sale of a number of its stores, including the UK’s largest sports retailer Sports Direct, but buyers were understood to be put off by the company’s huge pension deficit.
Founded in 1928, BHS was once seen as a stalwart of the British high street, but the company has seen its market share reduce dramatically over the past 15 years. Since 2000, BHS has seen its share of the UK clothing market drop by around 40%, and the company has run at a loss for the past seven years.
Its decline has been blamed on a variety of factors, including changing consumer tastes, competition from supermarkets, online and more agile budget retailers, unsustainable rents on their high street stores and huge debt and pension burdens.
BHS has previously admittedly that it cannot support its £571m pension deficit, which includes the cost to an insurer of buying it out.
Chairman of the BHS Pension Trustees Chris Martin told the Telegraph that today’s news would make “no difference to the outcome for our scheme members” as they would end up in the Pension Protection Fund [PPF].
Entering the government-administered PPF fund, designed to protect the pensions of companies that fall into insolvency – will mean that around 20,000 current and former BHS employees will see their future incomes fall by 10%.
Many of the retailer’s high street locations are also committed to long contracts paying well above market rates. In one example BHS were paying £404,000 a year for their Clydebank store, which estate agent Savills estimated at 65% above market value.
Last month BHS worked with KPMG on company voluntary arrangement (CVA) proposals aimed at helping the company reduce the rental burdens from its 164 stores, but the cuts did not solve BHS's other financial issues.
The CVA document warned that if BHS were to collapse it would cost creditors £1.3bn.
UK high streets ‘a net beneficiary’
Blogging about the news Richard Perks, director of retail research at Mintel, stated that it was likely the retail chain will now be broken up and sold store by store.
“Some of the best sites have already gone – notably the Oxford Street store, which has been taken by Poland's LPP as a flagship for its Reserved chain to enter the UK," said Perks. “That is the positive side of the failure of BHS. It removes a long term underperformer from the high street and replaces it with a new, more dynamic business.
“One has to feel sorry for the 11,000 staff who look likely to lose their jobs, but the UK high streets will be a net beneficiary of the disappearance of the BHS because it opens the way for new, better performing stores. If so, then retail employment overall could benefit, but that will not be much consolation to the BHS staff in the immediate future.”
Perks stated that it was possible that the group could be rescued, but any deal would probably mean finding a way to walk away from the pension liability.