What can you get for a £1 these days – a department store chain!

Today it has been announced that Philip Green has finally got rid of BHS after a 15 years tenure of ownership. The purchase price just £1! It has 171 stores, 11,000 staff, £70m of pre tax losses last year and a £130m pension deficit to mention just a few financial and operational stats. The unknown stat is how much the properties are actually worth as a figure of up to £200m has been quoted in the press but if Morrisons property write down yesterday is anything to go by then proceed with caution. The buyer is aptly named Retail Acquisitions Limited which is led by Keith Smith. The good news is that Philip Green has written off any debt.

So is this a real opportunity to turn BHS around but at what cost and if Philip Green couldn’t do it then who can?

A quick snapshot of BHS through the eyes of LDC’s insight tool paints an interesting picture due to the number of stores as well as the diversity of locations. Headline analysis by LDC’s Health Index developed in partnership with Morgan Stanley shows that 12% of stores are in improving locations, 73% in stable locations but 15% of the portfolio are in weakening locations. The image below illustrates this

Screen Shot 2015-03-13 at 08.06.54

The red towns are the weakening locations so who are they? Too many to list but the top three include Crewe, Basildon and Newport, Monmouthshire whose issues have been well documented before. Of note is that there is no geographical bias and that the weak locations are far and wide. On a more positive note the strengthening locations are equally spread with Watford, Birmingham and Newcastle upon Tyne all featuring strongly.

So what will be the new strategy and can investment be realised from the sale and or leaseback of any property and if so where? Looking at other ‘department stores’ BHS has the most (if one excludes M&S) followed by Debenhams, House of Fraser and John Lewis significantly fewer. Whilst different in format and offer the reality is that BHS has more than five times more stores that John Lewis and aside of property costs you also have the logistics infrastructure costs to support them as well as its online offer. Anyone know what percentage of BHS sales are online or click and collect?

So interesting times lie ahead for the new owners and one hopes they can make a good go of what is a significant retailer but one that faces many challenges in the months and years ahead.

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