Monday 25 April 2016

Not shaping up as the best year

Businesses go bust all the time. It is the way of Capitalism and overall is a force for the good. Rubbish is cleared away and shiny, new and hopefully more efficient beasts are freed to emerge.

More likely, old and knackered companies are taken out where the new ones have already won the field.

BHS going into administration is the latest such event. Online retailing and a changing high street (seriously, youngsters die for iphones and wifi, they have few material needs beyond this that I can see apart from cheap fashion) mix have done for a format that was all things to all men circa 1995.

It is said a buyer will be sought, but they have already tried that and Dominic Chappell did not really have any answers to the business model, just attempted financial engineering.

So the shops will be sold piecemeal and BHS will be gone with Woolworths. Of course, there is the Tata steel issue too, where doey-eyed management is trying to get the Government onside with a sizeable bale out. No such thing is required, there is plenty of steel in the world and plenty for the future. It is not like the iron ore is from the UK so it is hard to make this a 'national security' issue.

But taken together these two sad stories do not do much to show the country is robust health. The high street continues its long term re-arrangement but does the online world generate the jobs and economy of the pre-online high street. If not, what are we to do to cover the gap? In steel we cannot compete with China's over-investment - same as in ship-building previously. Again, what can be done.

Currently unemployment is low in the UK, but for how long if the economy remains uncompetitive and based on a zero interest rate policy. The UK should make it through this bumpy period post the referendum, but it is a sign perhaps that resilience has its limits.


andrew said...

So brexit or not we are on a convergent path with the EU in terms of unemployment

Anonymous said...

Things haven't been the same since the enclosures.

Bill Quango MP said...

You beat me to it CU. Just reading the administration notices on BHS.
I did actually buy a light from them just a few weeks ago. First time in ages I've even been in the poor man's M&S.

I wrote pages and pages back when Woolworths went under.Sadly much of the necessary steps that a government could take to prevent more occurring haven't happened. And those that did were undertaken back in the Brown era.
Only a few weeks ago did the government even begin to look at the rates issue, that has been dragging retail down since the 1990s.

I saw Cahepelle at JDMs place a few months ago. So I looked at BHS with a 'retail' eye when I was buying that lamp.
Hard to do much of an evaluation as the stock levels were right down. That's a sign that there won't be any money for any innovations even if they had any. Been through it many times.

4,000 jobs is Steel
11,000 at BHS . {minimum - more like 18,000 once those dependent on them are included.}

There won't be any union protests and Newspapers demanding a bailout for BHS. For the same reason the government should absolubtely have reused to even consider anything beyond 1 year subsidy at TATA. And only that 1 year because they fouled it up in the first place.

Blue Eyes said...

Is BHS really a barometer for the UK economy?

The BBC article notes that retail is ultra-competitive and that as a result its offerings are attractive and not just to UK consumers. In other words, the sector is in rude health. But there is no room for slouches. Good.

Where will replacement jobs come from? Who knows, some will be in the shops that replace BHS, others will be in other sectors. Still others in sectors which do not exist and are not predictable.

Why are people so keen on a steady state?

Blue Eyes said...

Also, can we blame the EU/Obama/Brexit fears/immigrants?

Anonymous said...

Also, can we blame the EU/Obama/Brexit fears/immigrants?

BHS, Tata and Obama have one common theme - a reality check.

Leaving aside the use of financial engineering to distance yourself from pension liabilities, perhaps BHS's main problem was there were not enough immigrants for their not-so-cheap and nasty products.

So where is the £500mn to meet the pensions obligation going to come from then

andrew said...

I think Michael Gove did blame Obama on R4 today at about 8.17
- though I can't really blame Obama for not shopping there, I see him as more of a Heals person.

More seriously Gove did make an explicit move away from battling in terms of 'better off/worse off' and moved towards 'sovereignty / control over our own destiny'

He may be right, but having a white middle aged westminster professional pol saying this translates to 'more power for london' if the listener lives outside the M25.

If he started saying that decisions need to be taken at the right level and that means devolving real power to as low a level as possible and by the way that naturally implies getting out of the EU not least because uniquely, we are an island with undeniably fixed boundaries, brexit may start getting somewhere.

Which is scary.

CityUnslicker said...

BE - it is not about steady state. Retailing is in swift decline as the contents of most high street show. Acres of pound shops and charity shops - few goods stores at all. The reality of the internet hits deep.

But will delivery drivers, programmers and stock pickers at Amazon distribution centres replace all the BHS jobs.

the answer is no. Will closing the steel plant allow everyone there to become interior designers or police officers - no.

There will and should always be failures in business, but both of these business suffer from excess Govt regulation which is why they have died. It is not all about market forces.

Anonymous said...

VR headset gaming rooms. That's the answer.
Laser quest with full 3d imagery.

Should fill up 200 or so jobs nationwie.

Anonymous said...

"excess Govt regulation which is why they have died."

So asking a company to meet it's pension obligations is meddling?

MyOutName said...

Well now..... where to start?

BHS has fallen on its arse because of govt policy, let there be no doubt about that.
More precisely the policy of QE and the ramping of asset (property) prices. As these notional valuations rise, rental returns shrink. Thus rents are increased. This was the major factor in BHS' decline.

Of course what the government will suggest we need now is unlimited immigration. In addition, we should cleave to a pseudo-political union that spends >30% of its budget subsidising landowners.
Asset prices crashed in 2008 - which should have allowed a fresh start - but the govt continues with this charade.
Its little short of treason.

Finally, I find it remarkable that Martin Wolf from the FT warned recently that Germany would 'smash' the UK if it left the EU and this goes unremarked.
Cameron looks more and more like Chamberlain with each passing day.

Remember, everything is connected to everything else BHS -> QE

Blue Eyes said...


Presumably Next is also about to go bust, by that reasoning. And Tesco. And all the rest.

CU you seem to be bemoaning the acres of retail space. Maybe we don't need it all any more. Why should high streets be the same shape and size forever?

I will do a retort post in the next day or two ;)

Bill Quango MP said...

The rent rises came along long, long before QE. The worst of the rises, sometimes 400% rent increases, were in the mid 1990s.

The directors recently, though much too late, got a very necessary deal on the rents. Landlords were quite terrified of being lumbered with what are quite significant sized stores, in b locations, that already contain the sort of retailer who would want a big unit.
Sports Direct

New Look / Next etc would only take one on a dead cheap deal. Its the landlord with the problem now. Prime lumps of crap that can't be turned over quickly. Wth the pension commitments and the lackluster trading no one was willing to lend them the money to begin to even start turning it around.
I would estimate that the necessary refit of a single BHS shop, on the cheap, so cheap its not much more than painting the interiors,would be £100,000.
It costs £20,000 to refit your local newsagent.

Just so we are aware of the state of the high street,a shop that I looked at back in 2005, that is in a major town, in an open precinct, and which closed its doors in 2007, is still unlet, almost 10 years later. The other two possible sites, both rejected by myself,way back in 2005, are also empty units that have had one short term tenant between them in 10 years.
The trend in retail is for bigger shops, in better locations. Anything that isn't grade A is in trouble. Those that know Bath, or Exeter or Woking or even Sheffield can see this themselves. The older, least accessible, oddly shaped stores, are full of C grade shops, eeking out a living on betting shops, barbers, private cafes, exchange shops, charity shops, hairdressers and crappy gifts and the very tail end of the high street chains.

QE does ot have much to with it. CU is right. The Internet was the killer. Something that we actually stopped even reporting on here in about 2007or so , when the E commerce, for the first time, outsold the brick.

We predicted here that once that happens, only the very best shops in the very best high streets, or with some tourist or crafty USP, could survive.

Raedwald said...

So let me get this right.

These guys Retail Acquisitions buy BHS for £1, take £30m in cash out of the business and allow it to go into administration.

And this is quite legal?

Electro-Kevin said...

"Why are people so keen on steady state ?"

You really need to be a parent. It's not growing old that does it to you. It's being a parent.


"seriously, youngsters die for iphones and wifi, they have few material needs beyond this that I can see apart from cheap fashion" This is a big problem. In the absence of a proper life (running a family home) they are living a virtual life instead.


Blue Eyes said...

Bye, then.

CityUnslicker said...


I doubt the scare stories about Retail acquisitions are true of the £30 million reported in the guardian 10m is for interest payments and another 8m for legal fees accrued trying to save the company.

So at best it is £12 million and my actual guess it is less than £5m. Unsavoury, maybe, but the CVA shows they were trying to save the company even if unsuccessful. That is a complex and stressful process - if they were asset strippers they would have done more dodgy things with the freehold property (albeit, this may come out in the future...)

Anonymous said...

"the CVA shows they were trying to save the company even if unsuccessful"

So Retail Acquisitions are the victims in all of this.

It's these bloody spongers of the staff and their needing their pensions ....

Jan said...

BHS was failing for years. I'm surprised it lasted for as long as it did. It was a really boring shop for clothing and only the lighting dept ever had anything I wanted to buy. I doubt if anyone under 40 ever went in there. The shops were also far too big. Same with M&S which I predict could be next to suffer as the demographic which they cater for is dying off.

Raedwald said...

Thanks CU ... yes, let's see what comes out.

Jan, agree - but even the lighting was a bit naff - neither good enough faux-traditional quality (e.g. like Christopher Wray) to satisfy older wealthy consolidators nor loft-apartment cool (Conran / Ikea) to tempt young homemakers.

I once wasted an hour trying to find very simple plain white crockery - round white dinner plates and a few other bits - but everything they had was either patterned, weird, useless or garish and unattractive.

Was it the buyers or the board?

Bill Quango MP said...

One of my very first jobs in recruitment was to find a butler for Philip Green.

Was a bit tricky as I'd come over from transport and only had good HGV contacts.

Electro-Kevin said...

BQ - He'll need a truck driver to transport all that money. Now's your chance to make a second impression !

Blue - Not 'Bye'. This is my social life. I come to these places primarily because it's even cheaper than Weatherspoons and I am on a strict drugs/alcohol restriction (work.)

We must never underestimate risk aversion (as opposed to work aversion.) The lure of a steady wage doing a defined and secure job outweighs the chance of lots of money as an incentive for innovative thinking, especially if there is a risk of no money - or even worse - debt.

Comfort zone, I think they call it.

Not many people want to step out of it. Especially if they're inputting all their energy and resources into raising the next generation.

Yes yes. The way of the world and all that. I'm not saying BHS shouldn't fold. Just explaining why some managers stick with the same-old same-old and hope for the best.

A job for the young and thrusting singles, perhaps. But then how do they know how to market to the Fuddies ?

Steven_L said...

BHS was a scam, and not a very good one. Every Xmas they packaged 330ml supermarket beers like Bud and Coors into cardboard boxes hoping senile old biddies buy them for their grandsons for four quid a bottle.

The rest of the shop was full of either the sort of junk you see on infomercial channels or the sort of tat you can get at Primark, M&S, Debenhams or even Asda.

Weekend Yachtsman said...

Just before Woolworths went down, I remember going into one of their stores and thinking "Why does anyone even come in here? The place is tatty, run-down, and not very clean, and the products offered are all rubbish."

BHS had become quite a bit like that (though admittedly not as bad), so its demise comes as no shock at all.

Rubbish companies have to go, as you've said.

Electro-Kevin said...

The big out-of-towners ASDA (George) Tesco, Sainsbury's - with their clothing depts and aisles where you can get a toaster, mauve kettle and a wide screen TV to go with the food shop... how does in-town BHS compete with that ?

I don't fully understand the £1 value vs £400m dividends issue (clearly 't in't right) but it's obvious that the siting of BHS shops is an issue. John Lewis is where we go if we want REALLY nice things - better still, independents.

I nearly bought a horse saddle in Lidls ! Well. It seemed such a good deal.

Weekend Yachtsman said...

A horse saddle in Lidl!

Whatever next?

Well actually I bought a vernier calliper in Aldi's a couple of years ago; they had a box of about 20 of them, so there you go. Just the thing for checking propeller shaft alignment...