Sunday Retail News Roundup
Landlords hold key to ailing chain’s future after pensions lifeboat decides not to take part in ballot of creditors. BHS’s biggest creditor plans to abstain from a crucial restructuring vote this week. The state-backed Pension Protection Fund (PPF), which is rescuing BHS’s 20,000 savers, intends to hold back from voting on a controversial insolvency proposal on Wednesday. BHS is trying to push through a company voluntary arrangement (CVA) that would cut rents on more than half its 164 stores and give it the option to close 40 after a period. BHS needs the approval of 75% of its creditors to proceed with the plan. Without a deal, it has warned it is “very likely” to go into administration, putting 11,000 jobs at risk. The PPF, which is backed by the government and funded by a levy on the retirement schemes of blue-chip companies, such as BP, is in the process of absorbing BHS’s two pension funds.
As many as 330 Argos stores could close after J Sainsbury moved nearer to sealing a £1.4bn takeover of the high street catalogue retailer. J Sainsbury tabled a formal offer for Argos’s parent company, Home Retail Group, on Friday after Steinhoff, a South African rival, pulled out. Home Retail said it would work towards recommending the cash-and-stock bid, which has risen from 161p a share to 173p owing to an increase in the grocer’s market value.
Next is set to reveal a drop in “super-customers” buying with high-interest credit, heralding a difficult spell for the high street darling. The FTSE 100 fashion retailer, whose shares have more than tripled in the past five years, is expected to report a 3% fall in the number of shoppers taking finance from its directory. Super-customers, who buy on credit, are several times more valuable than “cash” customers. Not only do they bring in interest payments, £166.4m last year, but they tend to shop more often and buy more. Last year it lost 74,000 credit customers, or 2.6% of the total. Next tried to respond by cutting interest rates, almost halving minimum monthly repayment and upping page numbers in its directory. Despite the storm clouds, Next is forecast to report 4.4% growth in pre-tax profits to £817m on Thursday and an increase in sales of more than 3%.
Mail on Sunday.
The Pensions Regulator is considering enforcement action to compel billionaire Sir Philip Green’s family or its retail business, Arcadia Group, to stump up at least £300 million to plug a pensions black hole at his former company, BHS. The threat of action comes ahead of crucial talks between BHS, its suppliers and landlords aimed at saving the foundering business. The rescue, due to be completed on Wednesday, will not include a plan for the pension fund, which has a £571 million shortfall. Though Green sold BHS a year ago, the regulator can demand payouts from a former owner if there has been a deliberate attempt to avoid a statutory debt. The billionaire’s family still owns Arcadia Group, the main subsidiary of Taveta, which includes brands such as Top Shop, Top Man, Dorothy Perkins, Burton and Miss Selfridge. Separately from BHS, Arcadia paid the Greens a £1.2 billion dividend in 2005, the biggest in UK history.
The battle for domination on the High Street looks set to intensify amid signs family favourite Next is losing its sheen. Next's phenomenal growth could begin to stutter as its lucrative catalogue and online business Next Directory weakens. That could be a chance for the incoming new boss at Marks & Spencer, Steve Rowe, to regain its long-lost position of High Street darling. Next makes nearly £170million a year from offering credit, charged at 22.9 per cent APR. Credit customer recruitment has gone down from 700,000 four years ago to 400,000, a 40 per cent drop. Next claimed last year that it 'may be able to take steps to arrest the decline'. Next's board said it expects annual profits of about £817million, which was at the lower end of previous guidance issued in October.
BHS claims it is struggling and desperately needs to restructure its finances because rent it is pays on its shops is too high. It is trying to push through a company voluntary arrangement, an insolvency procedure, that will see rents cut at more than half of its 164 stores, with as many as 40 closing. Creditors will vote on the vital CVA on Wednesday. BHS needs 75% of creditors to vote in favour of the proposals and has warned that it will collapse into administration if it is rejected. Documents filed at the high court as part of the CVA show that BHS has debts of more than £1.3bn, including a pension deficit of £571m. The turnaround plan is designed to reinvent BHS, modernising stores, installing food departments, cutting the number of promotions in favour of lower everyday prices, and focusing on a smaller number of own-brand ranges.
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