BHS administration “more significant than Woolworth’s” as cost to taxpayer stacks up
The collapse of BHS could be "more significant than Woolworths" – and the business is unlikely to survive in any meaningful form, experts have told City PM
Parent company Retail Acquisitions called in administrators Duff & Phelps yesterday afternoon, a year after buying the debt-laden business from Sir Philip Green for £1.
Managing directors Phil Duffy and Benjamin Wiles are running it as a going concern, and sources have expressed optimism that a buyer will be found that could save some of the near-11,000 jobs at risk if the 164 store retailer goes under.
But analysts claimed that, with so few profitable stores across the portfolio, any purchase was likely to be piecemeal. Sports Direct was not seen as likely to attempt a major reinvigoration of the firm, despite being named as contender to buy it from administration. The Mike Ashley-owned retailer and others including H&M, Zara, Superdry, Primark were seen as preferring instead to "cherry pick" the best sites.
Neil Saunders, chief executive of Conlumino, foresaw little chance of BHS surviving.
"A firm that lacks relevance but has a sound financial footing has a chance of reinvention. A firm that has relevance but lacks a sound financial footing has a chance of attracting investment. Sadly, BHS has neither," he said.
Meanwhile, years of under-investment have left the iconic retailer notching up debts of £1.3bn – and the taxpayer is likely to pick up the tab for a sizeable amount. On entering administration the £571m pension deficit has been transferred to the Public Pension Fund (PPF), and although former owner Sir Philip Green is on the hook for £40m – perhaps more – the public could be left footing much of the rest of the bill.
Nick Hood, business risk adviser for Opus Restructuring, told City PM:"Serious questions have to be asked of the previous and current owners about how a business like this was able to stagger on for so long and end up with £1.3bn debt, a large proportion of which the tax payer will have to pick up.
"The stewardship of this company, past and present, have damaged the prospects of 11,000 staff, 20,000 pensioners, countless suppliers worldwide and the UK taxpayer," he added.
"This is a more significant collapse than Woolies, which was pushed over the edge by the recession. This is an equally tired brand, but one that appears to have died from under-investment."
Woolworths, which collapsed in 2008, is estimated to have cost the taxpayer around £60m.
The demise of the 88-year-old department store could herald others, experts warned.
Retail casualties this year already include Brantano, the shoe chain which was bought back last month by its previous owner Alteri through a prepack administration, and the tailor Austin Reed, which filed it intention to appoint administrators last week.
"Retailing is the survival of the fittest and BHS was left wanting. It won’t be alone," Knight Frank's head of retail research, Stephen Springham.
Joe Rundle, head of trading at ETX Capital, agreed. "It’s not just BHS that’s suffering – shares are down sector-wide over the last 12 months – reflecting investor caution about an industry that’s increasingly dependent on cheap credit and little else to drive it," he said. "BHS may have been another Woolworths that struggled to adapt to the new retail world. But the same pressures that squeezed the life out of BHS are being felt across the UK retail sector today."
Hood warned that fashion groups were at particular risk, citing Next's recent warning that the year ahead could be the worst period since the 2008 recession.
"If Next are struggling, what on earth must be going on less well-capitalised, less well-run, less IT-savvy businesses out there?," he asked. "I suspect we will see a number of other fashion chain collapses – it will only take a bit of bad weather."