BHS eyes store closures and pension fix
Retailer has appointed KPMG to draw up options that will enable the company to drastically reduce its 170-strong store estate
The owners of BHS are planning a radical overhaul of the struggling high street chain that is expected to trigger significant store closures, the restructuring of its massive pension scheme and further job losses.
The management team has appointed KPMG to draw up options that will enable the retailer to drastically reduce its 170-strong store estate, as it wrestles with attempts to turn it around.
The fashion and homeware company lost £85m before tax last year, after Sir Philip Green sold the fashion and homewares chain to a little-known consortium called Retail Acquisitions for £1.
Since taking over, the new owners have taken a series of measures to slash costs and improve the chain’s strained finances. A £65m loan was raised from specialist lenders Grovepoint Capital and it has raised further cash by leasing the retailer’s flagship Oxford Street store.
Although KPMG has only recently been appointed, it is understood that one route under consideration is a Company Voluntary Arrangement, a scheme whereby landlords are often asked to vote on an offer of reduced rents before the stores eventually close down.
However, other options will be studied including one-to-one negotiations with individual property owners in a bid to slash the rent bill.
BHS wants to get out of at least 30 stores, but the eventual number could be more, it is understood. Retail Acquisitions drew up a list of more than 50 shops that would be placed under review just weeks after taking control in March last year.
Separately, Grant Thornton is attempting to come up with a proposal that will reduce the financial strain of the retailer’s pension scheme.
This could mean scaling back funding, offloading the scheme to a specialist pension buyout vehicle, or even an attempt to hive it off into the Pension Protection Scheme. However, no decision has been made on action to be taken.
BHS’s pension plan has a big deficit. The trustees’ most recent estimate of the shortfall was £207m but it is expected to increase at its next valuation.
In a letter to members of the scheme last March, shortly after BHS was sold, Chris Martin, chairman of the pension trustees admitted that both the company pension scheme and the senior management scheme had “large shortfalls between their assets and the amount they need to pay current and future benefits to all members”.
“The trustees will be discussing, with the new owners of BHS, the level of contributions required to make good these shortfalls and over what period of time those contributions need to be paid.”
“Given the size of the shortfalls, the trustees expect that these discussions may take many months to conclude,” he said.
Attempts to revive BHS have been hit by the withdrawal of credit insurance to its suppliers. Some had to stop trading with the chain after cover was pulled.
A spokesman for Retail Acquisitions said: “BHS has stated publicly many times since the acquisition that it would like to take steps to address a number of unprofitable stores. This may involve discussions with some landlords, and KPMG will help us in this process.”
“We have made no secret of the fact that like other companies we have a pension deficit that we would like to address also and we continue to take advice in relation to this complex area.
“Our turnaround plan is still in its first year. Although we still have a long way to go, we are entirely confident that we will regain our place as an iconic British high street brand.”