Retailer seeks to slash its rent bill with CVA

STRUGGLING retailer BHS has been forced into a CVA as it battles to get affordable rents at its stores across the country.

The high street group, which has 18 of its 164 stores in the region, needs its creditors to agree to its plans to enter company voluntary arrangement (CVA) proposals for BHS Ltd and BHS Properties Ltd.

It has threatened landlords of 40 stores – including four in the North West – they will close unless they agree to receive 25% of the rent due in the next 10 months and negotiate rent reductions.

“Where rent reductions are achieved, these stores will remain open,” said Will Wright, restructuring partner at KPMG and proposed supervisor of the CVA. “It is hoped that the store closure number will be kept to a minimum.”

It is asking landlords of 47 other stores nationally to agree to rent cuts of up to 50% as it looks to find a way to be profitable.

The retailer was bought for just £1 last March by Retail Acquisitions from entrepreneur Sir Philip Green and in the year to August 2015 lost £85m.

The CVA is an acknowledgement that the turnaround plan can only be achieved by transforming the cost base of the business through tackling its “onerous lease arrangements”.

BHS faces tough competition from its traditional rivals John Lewis and Debenhams while other competitors, including supermarkets and online retailers, now offer cheaper clothing and home products.

Mr Wright said: “For almost 90 years, BHS has been one of the most iconic brands on the UK high street, but in recent years has seen its profitability decline as it has sought to respond to changing customer behaviours, increased competition and the rise in omni-channel retailing.”

The CVA strategy intends for all of its stores to continue trading, at least until the end of 2016.

77 of its “most viable” stores will continue to pay full rent, although it will move to a monthly, rather than quarterly, billing cycle for three years. These stores include Bury, Lancaster, Liverpool Lord Street, Stockport, Blackburn, Blackpool and Manchester Arndale.

Around 30% of its stores “have been deemed viable if a reduction in rent is obtained”. The CVA would see 21 stores pay 75% of the monthly rent and a further 26 pay 50%. The North West stores are at Denton, Widnes, Wigan’s Grand Arcade, Preston, Chester, St Helens and Bolton.

The remaining 40 stores – including those at Manchester Barton Square at the Trafford Centre, Oldham,  Southport
and Warrington would pay 25% of the rent due for at least 10 months while negotiations take place.

Mr Wright added: “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.”

The company needs to secure at least 75% creditor approval for these CVAs with the vote taking place on March 23.
 
Manchester-based KPMG partner Brian Green, an expert in CVA deals, is also a proposed supervisor of the BHS proposal.

He added: “BHS currently has a total of 164 retail sites across the UK. Importantly, none of these stores will close on day one, and suppliers will continue to be paid on time and in full. The landlords of a total of 77 of the most viable stores will be retained at current rents which will be paid monthly as opposed to quarterly for three years. A further 47 stores have been identified as being viable at a reduced equivalent monthly rent of either 75% or 50%.

“The remaining 40 stores will continue to trade for a period of a minimum of 10 months whilst negotiations with landlords are undertaken to reduce the rents substantially. Where rent reductions are achieved, these stores will remain open. It is hoped that the store closure number will be kept to a minimum.”