When the department store chain BHS filed for administration at the end of April, it was noted as “the biggest failure on the high street since that of Woolworths,” with 11,000 jobs in jeopardy. The company had been a loss-maker for the last seven years, and was most recently sold off by Sir Philip Green to the Retail Acquisitions group for just £1. By comparison, Green had originally bought BHS in 2000 for £200 million.

What changed for the once-mighty British Home Stores over the last sixteen years? Was the company doomed, or could something have been done differently to save it from administration, and potential liquidation?

Rates and rent

Just a month before announcing it was going into administration, BHS was given permission by its creditors to reduce its rent for some of its stores – in some cases by either half or three-quarters. And while rents were frozen at their current price on 77 of the chain’s “most viable stores”, this was due to be paid to landlords in monthly (rather than quarterly) instalments over the next three years. Yet this short term fix, agreed to by 95% of the store’s creditors, did not come close to providing the £60 million shot in the arm the company needed.

Another lesser-trumpeted issue facing BHS was its payment of business rates. The last nationwide business rates revaluation took place in 2010, and was based on figures determined during the credit crunch of 2008. Consequently, it has been impossible for any chances (good or bad) in property valuation since the recession to be taken into account. This has led some firms to take matters into their own hands by conducting their own “shadow revaluation” in advance of next year’s revaluation – itself delayed from 2015 – in order to give their clients an idea of what to expect.

However, London property consultants Gerald Eve have pointed out that the capital is set to face a total rise in rates of £7.5 billion after the next revaluation. This has made even more trouble for BHS; a report from real estate company Colliers indicated that the company could have annually saved £15 million if the 2015 revaluation had gone ahead as planned. One real estate consultant claimed via Twitter that the chain was paying an extortionate £5,270 per day on its business rates on its Oxford Street flagship store alone.

Waning popularity

When Philip Green incorporated BHS into his Arcadia retail group (which also includes Topshop and Dorothy Perkins) in 2002, he could not have predicted the emergence of discount brands such as Primark and TK Maxx making their mark on the high street. Many have pointed to the “lack of vision” regarding the ability of the stores themselves to compete with newer, cheaper brands. One retail consultant observed that BHS’s refusal to redesign their branding and stores to be more in line with retail trends and consumer taste was what caused the brand’s previous 13.4% share of the clothing market in 2000 to dwindle to 1.4% fifteen years later. 

Pension deficit

Another major factor which some feel brought around the demise of BHS is a deficit within its pension scheme. Despite investors, including Green himself, receiving a total of around £587 million in bonuses from the company since 2000, the company’s total pension deficit at the time of going into administration was £571 million.

Even when the global financial crash hit, the company pension pot still managed to be in the black, to the tune of £3.4 million. However, in the space of one year, that surplus swiftly became a staggering £137.9 million deficit, with the company pledging a multimillion pound contribution as a projected 23-year recovery plan.

The majority of BHS’s 20,000 employees are now set to receive a pension at least 10% lower than promised, with some of this money being contributed by the government-run Pension Protection Fund. Green is also being asked by The Pensions Regulator (the UK’s pensions watchdog) to contribute at least £300 million in order to ease the debt, and is due to give evidence at an enquiry by parliament around this issue.

With the moguls behind the likes of Matalan and Sports Direct now all competing to take the business over – likely for a higher sum than the £1 which Retail Acquisitions paid for it – it would seem that there may yet be life in BHS. However, it’s almost guaranteed that the British Home Stores brand is what is being bought, and that the chain will undergo a significant makeover to avoid repeating its past mistakes.