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Sites the prize asset for BHS suitors

BHS needs to shed between 30 and 40 underperforming stores with high rents and long leases, property sources have said in the wake of Sir Philip Green’s decision to “consider offers” for the struggling chain.

BHS, which Green bought for £200m from retail conglomerate Storehouse in 2000 and merged with Arcadia Group in 2009, made pre-tax losses of £116m in 2012 and £69.6m in 2013.

Green told Drapers in November he had not received a sensible offer for the business within the previous 12 months. But this week an Arcadia spokeswoman said: “We have had several approaches on BHS over the past few months. It is now the company’s plan to explore whether any of these can be brought to a conclusion.”

Any offers are likely to come from those looking for more retail space.

BHS has 173 UK stores, of which 14 are dedicated home stores. Over the past few years, Green has been trying to trim the portfolio to around 100.

Drapers understands that approximately 40 stores, mainly in out-of-town locations, have posed a particular problem, but the cost of terminating the leases is prohibitive.

“BHS’s out-of-town stores haven’t worked and there are some huge stores, such as Stirling and Leicester, that have very high rents,” one property source said. “It is likely BHS will go to someone like [restructuring specialist] Hilco Capital, which could do a pre-pack administration to get out of the stores that aren’t working and start again.”

According to industry experts, Primark is one retailer that could be interested, having bought 14 BHS stores since 2010 in locations including Harrogate, Guildford, Winchester, Canterbury, Bath, Cardiff and, most recently, Fosse Shopping Park in Leicester.

Others have speculated that the big four supermarkets will target some stores. BHS introduced food trials in March 2014 and BHS Food now operates in three stores in Warrington, Staines and Romford, with the opportunity to sell food in a further 140 stores.

But retail consultant Richard Hyman said: “Having permission to sell food is useful, but very few of these stores have adjacent car parking and are too big for convenience stores. Most of the supermarkets have too many stores anyway.”

Jonathan De Mello, head of retail consultancy at property agency Harper Dennis Hobbs, highlighted the lack of consistency in BHS’s store sizes and values. He said: “Most of the stores are large and very prime units that could either be sold to international retailers or department stores in their own right, or broken up into smaller, valuable units, in which a buyer could build a small shopping area in a prime space. “This would only work in BHS stores in key, valuable centres, particularly in the London area, where retailer demand for prime space outweighs current supply of such space.”

According to data from Harper Dennis Hobbs and Experian’s retail property intelligence system Goad, about half of BHS stores are in the top 100 retail centres by spend, making them valuable to potential buyers. Half of those are bigger than 40,000 sq ft. It is understood the Oxford Street store in London could be worth approximately £50m.

However, independent retail analyst Nick Bubb said: “If BHS was a freestanding company, we’d probably be looking at it going into administration, so I wouldn’t get too excited about these ‘offers’ to buy it. A big complication will be the Arcadia brands entangled with BHS via the concession inserts.”

He added: “I wouldn’t rule out [Sports Direct’s] Mike Ashley being interested, but it may yet come down to a Hilco-type solution, with a breakup and just a few of the best stores being cherry-picked by fashion retailers and supermarkets.”

South African billionaire Christo Wiese hinted he was interested in making an offer for BHS in 2013, but has since unveiled plans for the launch of value chain Pep&Co (see page 5).

BHS employs 11,000 staff across its head office and stores. It has 88 international franchise stores in countries including Russia, Malaysia and UAE.

Hilco and Primark declined to comment and Pepkor UK did not respond to a request for comment. Green was unavailable for comment.

 

Readers' comments (1)

  • PRIMARK have already acquired the BHS store at FOSSE PARK (Leicester) with planning granted for a store to open later this year.

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