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The reasons why BHS failed

BHS

AS BHS was placed into administration in the most significant high street insolvency since Woolworths, Financial Director takes a look at the factors that led to its collapse.

Its offering

“It’s not stylish enough. You can’t go wrong, but you can’t go right either,” one shopper in Bromley told BBC Radio 4’s Today programme of BHS earlier this week (25 April).

“It’s old-fashioned and out-of-date,” said another.

That assessment is borne out in the stats, too. Back in 2000, around 13.4% of clothing shoppers were choosing to buy their garments from BHS. Today, that figure is languishing at 8.2%, according to analyst Conlumino, with the market share dropping to 1.4% from 2.3% over the same period.

Not only that, but the perception among shoppers is that rivals Primark, New Look and H&M offer greater fashion value as well as the basics, while the likes of TK Maxx, M&S and Debenhams – which has have been far from problem-free themselves – offer more aspirational products at affordable prices.

Its estate

The estate of 164 UK stores the 88-year-old retailer has compare rather poorly to those of its competitors.

In February, owners Retail Acquisitions were forced to remortgage its flagship store on London’s Oxford Street – itself a rather tired headquarters in comparison to the peers around it. Earlier this month, it sold the lease on the store in a bid to raise funds.

Ultimately, though, its shops could help save it, with several other retailers including Mike Ashley’s Sports Direct Group reportedly showing an interest in cherry-picking some of its outlets.

A combination of long leases and successive hikes in the rents of many of its stores across the country proved to be a significant millstone around BHS’s neck.

Indeed, many of the contracts the retailer signed up to included upward-only rent reviews, meaning many of the rents it was paying were well above the market rate.

Its enormous pension deficit

With 20,000 pension holders and a deficit of £571m, grappling with the liability became increasingly burdensome for BHS.

The size of the deficit outweighs its assets, making the outfit unattractive to investors and buyers.

The Pensions Regulator is examining whether BHS deliberately avoided its pension obligations, leaving a rescue team to pick up the tab. It’s likely to be a long and laborious process, with no specific targets for the investigation currently set.

In the meantime, BHS pension holders face months, if not years, of uncertainty as the company’s two schemes are taken into the Pension Protection Fund – the state-run life preserver for pensions, which makes sure people receive their pension even after a company goes to the wall.

Its debt

BHS’s financial woes do not end there. It is also shackled with £1.3bn of total debt and its administrators from Begbies Traynor told the BBC it is “very unlikely” to meet all contractual payments.

In February, Financial Director reported Retail Acquisitions – the consortium comprising an eclectic mix of investors including former racing driver Dominic Chappell which bough BHS from Sir Philip Green for £1 – was seeking a £70m loan by the end of September when its next round of rent payments is due. It now appears time has run out and it was unable to rescue the situation.

By late March, it won a stay of execution after creditors offered it a CVA, but to no avail.

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