BHS is seeking “substantial” rent reductions at 40 stores

BHS is seeking “substantial” rent reductions at 40 stores

UK high street stalwart BHS has threatened to close around 40 stores unless it is successful in "substantially" reducing rents.

The struggling department store chain has submitted proposals to the High Court of a Company Voluntary Agreement (CVA) – a form of insolvency proceeding – in a bid to push through crucial finance restructuring and drive down rent for 87 of its 164 stores.

Under a CVA, BHS said it would seek "substantial" rent reductions at 40 stores that will otherwise be closed after a minimum period of ten months. KPMG said the retailer will pay 25% of the rent due on the stores.

The retail group is being advised by accountancy firm KPMG, which said the proposals are just one facet of a wider turnaround plan, and specifically tackle one of the business' largest fixed costs, the "onerous" lease arrangements across its UK-wide store portfolio.

"For almost 90 years, BHS has been one of the most iconic brands on the UK high street, but in recent years has seen its profitability decline as it has sought to respond to changing customer behaviours, increased competition and the rise in omni-channel retailing," said Will Wright, restructuring partner at KPMG and proposed 'supervisor' of the CVA.

"While the company's store estate is located across favourable retail locations, a number of these leases are unsustainable, predicated on terms which were originally negotiated some decades ago. With the support of its lenders, shareholders and landlords, the company will be able to reshape its debt and operational structure to a model more suited to today's multi-channel retail environment."

BHS has divided its properties into three categories in the CVA: 77 stores that will be retained; 47 stores deemed viable if a reduction in rent is obtained; and 40 that need a "substantial reduction" in rent to survive.

Wright says BHS needs to secure at least 75% creditor approval for the CVAs. The 40 stores under threat will close after a minimum period of ten months if negotiations are unsuccessful, and a reduced equivalent monthly rent of 25% will be paid.

Brian Green, restructuring partner at KPMG, said: "BHS has a total of 164 retail sites across the UK. Importantly, none of these stores will close on day one, and suppliers will continue to be paid on time and in full."

KPMG is expected to spend the next three weeks in talks with creditors, who will vote on the CVA on 23 March.

Arcadia Group sold BHS to Retail Acquisitions in March last year. The company is understood to have recorded a loss of GBP85m (US$120.3m) in its last financial year, and has a pension deficit of around GBP207m.

Arcadia sells BHS in "sensible strategic" move