As BHS proposes to enter a company voluntary arrangement (CVA) in a bid to slash rents on more than half of its stores, chief executive Darren Topp discusses the “difficult” but “necessary” process to set the struggling department store chain on a secure financial footing.
Darren Topp, BHS
“We have made lots of positive progress with the rollout of our turnaround plans, such as rolling out our convenience food offer, updating our signage and branding and introducing new concessions such as Quiz and Claire’s Accessories, but where we’ve not made as much progress is around the stores that are loss-making, which is what this CVA seeks to do,” BHS chief executive Darren Topp told Drapers on Thursday evening.
The company has divided its 164-strong store portfolio into three categories, with just over half impacted by the CVA.
“The first category comprises 77 stores that are already profitable and we feel we are paying market rent,” he said. “The only thing that will change there is that they will all shift to monthly rents.”
The Oxford Street flagship is unaffected by the proposals and Topp said he is continuing to investigate ways to maximise the economic value in the 100,000 sq ft store, through subletting parts of it or other options.
“We only trade in 50,000 sq ft of it at the moment,” he said. “You can only get that value out once so we want to get the maximum we can.”
He described the second category of 47 stores as “those which we feel are viable but we are seeking a rent reduction to market levels”. The reductions are between 25% and 50% of the current deals.
“The third category of 40 stores are loss-making and we feel we are paying significantly above the market rents, which drags down the rest of the business,” he explained. “The leases are often decades old, from when the retail market was a very different place.”
BHS is seeking a 75% reduction in its rents on these stores, which include Ashford, Ayr, Barnstaple, Birmingham, Cambridge, Croydon and Dundee.
The firm has committed to trading for a minimum period of 10 months while negotiations take place, but the stores could close if landlords refuse to agree to the new rents.
“The CVA allows us to reset the business and suddenly, instead of having a chunk of the estate dragging us down, we would be able to focus on turning it around to make it fit for the future,” he said.
Creditors will vote on the CVA proposals on March 23.
As part of plans to “reset the cost base”, the business will also restructure its head office and consolidate its management levels in stores.
Seven senior managers at head of department and director level left the business last week, said Topp.
As part of plans to “refocus and rebuild” BHS, House of Fraser’s brand marketing director Tony Holdway joined the firm as marketing and creative director in January to work on the brand proposition and “tighten up” its focus on its target customer.
Topp said customers have been telling them they want fewer options and better availability so the firm will be significantly reducing its house brands, which currently total more than 20. The company is also trialling various options relating to its use of space in stores and expects to roll out learnings from autumn.
BHS has signed a three-year deal with IBM to replatform its website, which is expected to relaunch at the end of summer. The changes will include improving functionality and availability, as well as uniting all its stock on the one site (at the moment, BHS’s furniture offer is available on a separate site to its main offer).
Two Debenhams stores currently sell BHS lighting, and Topp said this is proving successful. The two department store chains are in active discussions on further rollout and BHS lighting will launch on Debenhams’ website from summer.
BHS is inviting its suppliers to a business update on Monday, where it will set out its future strategy. Topp emphasised that the CVA proposal does not impact any supplier of goods and services to BHS.
He confirmed that the firm is in active discussions regarding the gaping pension deficit, which has come under much scrutiny since BHS was sold last year for £1, but that they have not yet come to a conclusion.
He described Retail Acquisitions’ major shareholder Dominic Chappell as “100% involved in the business”. He added: “He is not a retailer, but he is a businessman and he has been a force for good in the business. He has been supportive but challenged some of our plans in a constructive way.
“He is as determined as anyone to turn this business around.”