Property owners behind a host of BHS stores have said that the retailer’s attempts to secure wide-ranging rent cuts are unlikely to safeguard its future.
Creditors are due to vote on a Company Voluntary Arrangement (CVA) proposal in the coming fortnight. If it is voted through, the chain’s rent bill will be drastically reduced.
Many landlords are resigned to accepting the rent cuts sought by the department store chain because the alternative, as laid out in the CVA document, is administration. However, they believe rent reductions will make little difference to the retailer’s long-term prospects.
BHS, which employs 8,500 people directly and a further 1,500 contract staff, has been brought to its knees by onerous leases and a £571m pension black hole.
It has warned creditors they face total losses of £1.3bn if it collapses. The CVA needs 75 per cent of creditors to back its plans, which include cutting rents by 75 per cent on 40 of its least viable stores, and reductions of 25 per cent or 50 per cent at another 47 sites.
“The CVA doesn’t necessarily solve the problems that have been concerning us from the outset – the long-term viability of the business,” said one landlord that owns a number of BHS sites. “What concerns me is we’ll take the hit on the rent and then 18 months down the line we’ll find ourselves in a similar position.”
A second landlord said: “It doesn’t feel like it’s going to last.” He felt the department store chain would not survive two months.
Another also questioned whether BHS would be a “viable business” following the CVA.
Sir Philip Green sold BHS, which has 164 stores in the UK, a year ago for £1 to Retail Acquisitions, a consortium of investors with little experience in the retail industry.
In an interview with The Sunday Telegraph, Darren Topp, BHS’s chief executive, insisted that his turnaround plans involve more than just rent cuts.
“This CVA is about resetting the business, refocusing the business and rebuilding the business,” he said. “This isn’t a CVA just about the property.”
He added: “We’ve looked at the cost base and renegotiated all those contracts as we’ve come out of Arcadia. We’ve saved millions of pounds as a consequence of that.”
Mr Topp wants to expand BHS’s international franchise, boost the number of products sold in other British retailers, and increase its food offering. He said: “We are working really hard to ensure that the offer is more compelling.”
However, because a number of retailers, including JJB Sports and Blacks Leisure, have failed despite going through CVAs, landlords remain sceptical about BHS’s prospects.
“As a landlord we find CVAs irritating at best, because ultimately these are businesses that have failed to be run properly from the outset,” one said.
BHS’s pension deficit is expected to be put into the Government-backed Pension Protection Fund. Sir Philip has reportedly offered £80m to help plug the scheme’s shortfall.
Chris Martin, chairman of the trustees of the BHS pension fund, believes the company cannot support the scheme.
The move into the PPF leaves about 13,000 current and former staff below retirement age facing cuts of at least 10% to their benefits.
Last year Martin said in a letter that the former owner was unlikely to have any liability. “The trustees have no recourse to the assets of the Arcadia or Sir Philip Green or his family,” he said.
This weekend Frank Field, the Labour MP who chairs the work and pensions committee, said ministers should consider stripping Green of his knighthood.
“The government should employ every power it has to get him to pay up,” Field said