Thursday 2 June 2016

BHS goes the way of Woolies

Despite all the hand-wringing, BHS has gone to the wall as was entirely predictable.

No one came forward with enough cash to cover the gaping hole in working capital. Unsurprising, when as a retailer you start to fail it really is a tough time, you get insurances withdrawn and credit facilities with suppliers withdrawn and from there it is a steep mountain to climb back up; most never do.

Now the Government will have its fun looking into Sir Philip Green and Damon Chappell - but who will spot the obvious business model issue as the true cause of the decline. Well, there are no grandstanding votes in that so no one will.

However, the taxpayer is on the hook for the pensions as was always likely and will most likely happen with Tata steel too. Surely not there has to be some legislation, somewhat counter-intuitive, that stops companies making pension commitments that they won't be able to keep and then get lumped on the taxpayer.

Of course, with defined contribution schemes, that is already the case. We need now though to make them de riguer in the public and private space so that the future tax burdens of the Country are not even more utterly horrendous than they are already.

Given our politicians at the moment though, they will probably decide the opposite solution is better....


dearieme said...

Surely DB schemes will fall on the taxpayer only once the PPF is bankrupt? Until then they fall on the surviving DB schemes (which thereby become weaker).

Anonymous said...

Arguably Green's purchase of BHS was effectively a property ploy underpinned/concealed by his profile as a retailer. There were subsequently a large number of sale and leasebacks (at high rents perhaps not market sustainable) of BHS freeholds which netted millions and IIRC more than paid for the initial business acquisition.

dearieme said...

If investigators turn up any sign of a prior arrangement between the wide boy and the spiv, there will be fun and games.

andrew said...

Dearieme, the PPF is funded by other DB pension schemes.
The other DB schemes are funded by other companies.

The idea is the Govt is not on the hook.

btw i went to JL to buy a vaccum cleaner. The man there was an employee of Dyson, Poineted ant the Meile man, the Bosch woman and so on
Said that most of the floor staff near him do not work for JL and as they work for the manufacturer, they reccommentd people look to the manufacturer website.
He doubted that this will work out for JL in the long term.

i.e. it isnt just BHS, the clock is ticking for pretty much all retailers.

Anonymous said...

Have to agree the future is Amazon given the amount of discarded Amazon boxes I saw yesterday while leafleting for the Remain campaign.

Perhaps retailers should have the own "remain with us" campaign.

And as a segue to stupid civil servants hosing away taxpayers money, the DCLG has a task force in trying to save the High Street while at the same time money is being sent on improving the infrastructure so we can buy more online.

"Canute" politics in trying to stop the inevitable and slamming on the reverse gears.

CityUnslicker said...

Anon 941.

Precisely. Two thing shave to be done, one is the levelling of business rates so that online is not overly advantaged. Two, high streets etc need to be re-created as pure social spaces (I am not suggesting the Govt do this, just enable it) as people no longer need to spend their lives shopping out of the house.

My thoughts on this rotate around maybe having more than just food (the current fad) and personal services (hairdressers) but also perhaps Schools and hospitals etc.

This will take a decade or two but town planning is not a short term thing.

Steven_L said...

Why on Earth move schools and hospitals around (and ditch business rates) just to the Church of England and a few REIT's can keep collecting a good rent on their investments? Just what purpose does 'the high street' serve besides nostalgia?

British shops are a rip off anyway. If you're buying any expensive durables, you're better off going on eBay and buying grey imports or direct from Japan, the USA etc.

If online is more efficient, and multinationals insist on ripping off the British public with higher prices, then consumers are right to revolt.

dearieme said...

"Dearieme, the PPF is funded by other DB pension schemes.
The other DB schemes are funded by other companies."

Indeed, that's what I said, but thank you for the little echo.

Elby the Beserk said...

It's many many years since I've been in a BHS store. Regardless, even many many years ago, I always wondered how on earth they survived...

Raedwald said...

Re the planning points -

I once commissioned 4 design teams to 'tweak' 4 neighbourhood shopping parades / secondary shops for a London council who were willing to move parking, build out footways etc. No earthshattering results, but we managed to sustain two on the edge of failure, expand one and fail on one.

A typical London secondary / tertiary parade can support a fried chicken shop, an off-licence, a fags-n-mags and a betting shop. To get a chemist, a baker, a cafe etc you need an additional attraction but most importantly - and to the traders, who wanted all parking to be on-street right outside their shops, counter intuitively - you need to create transient footfall. That means putting parking at the edges and making pleasant, safe walking routes past as many retailers as possible. Volume of passing footfall is the single most important determinant of economic success.

Keep the walking distances to the parking areas reasonable - 50m to 200m - and design-in loading and unloading bays with enforced restrictions outside the retail units, and you've done about all that public space planning / intervention can do. The rest is up to the traders.

The same factors apply to winning and retaining butcher, greengrocer, clothes & shoes, optician, mobile phone shop, eat-in catering etc to larger high st type / market village shopping areas.

When you get to the large district shopping centres of the type that can accommodate TK Maxx, Primark, JD Sports, MacDonalds & co a different scale of rules apply - travel time & costs, public transport, competitors locations etc. These determinants are not static - they must be continually reviewed.

I can't help feel that the curse of BHS, Woolies and (to come) Boots is because they seem to have made their store placement decisions in the 1960s and haven't reviewed them all over time whilst the world has changed around them.

andrew said...


The PPF has the ability to take as much money as it needs from every company that has a DB scheme.

This means it has priority access to the cashflow of all those companies (note cashflow - not profit - so in some ways ranks above HMRC)

One small diff in the echo: In the event the last company running a DB scheme has gone under, and the PF is still in deficit I am NOT aware of any liability falling on the govt.

i.e. "The idea is the Govt is not on the hook."

However by then if the FTAS has been genocided, we have bigger problems.

Elby the Beserk said...

Radders - I don't understand either how Boots has not collapsed. Their stores are shambolic, tiny aisles, impossible to find anything, queue for ages to be served. An extraordinary business model, devoted to not if at all possible, serving the customer

andrew said...


Said that about WHS for the last 12 years... dont think they have been listening to me.

Looking at Boots (bristol)

1 It is the only place I know of that prints photos in front of you
2 It does lots of mother and baby stuff
3 It does lots of make-up stuff and perfume
4 It has a doctors / heath centre at the back

Yes, there are weaknesses, but with the coming of the internet, it does some things the internet cannot do.
No matter how good your broadband, you cannot
- smell over the internet
- try out the lipstick and have a real person tell you it looks great
- have someone tell you that lump does not really matter but take some of these just in case.

Anonymous said...

"I don't understand either how Boots has not collapsed"

Given that it's owned by private equity, if I were a long serving employee I'd be looking at the pension fund and considering the transfer out options.

Courts and BHS are salutary lessons. A Courts manager committed suicide when he found his pension gone.