The impact of administration: Are there positives?

Thursday 12th May 2016

Andy Brian, retail partner at Gordons, looks at the recent spate of high-profile administrations in the retail sector and whether downsizing provides effective mitigation.

Brantano, Austin Reed, BHS. All well-known high street brands with one thing in common: they recently entered administration, plunging their futures into uncertainty.

Of course, everyone is aware of the plight of BHS, which has, in the space of 16 years, gone from being purchased by Sir Philip Green for £200 million, to being sold for just £1 with some £215 million of debts written off, to being on the verge of falling out of existence with £1.3 billion of debt.

The fallout of the BHS administration somewhat overshadowed the news that Austin Reed, which has 100 standalone stores in the UK and a presence in 50 further stores, has also fallen victim to a challenging retail environment and entered administration.

This, in turn, followed Brantano’s entry into administration in January, which administrators PwC said came after the company was “hit hard by the change in consumers’ shopping habits and the evolution of the UK retail environment” and came to a head following a failure to reach an agreement with landlords over rents.

These high-profile cases have undoubtedly fuelled uncertainty over jobs, the economy and the UK high street, but is all the doom and gloom warranted or are there positives to be had?

The common theme here is an unsurprising one; for as long as retail stores have existed, so has competition between them, and this inevitably leads to some companies going out of business.

However, this is not the only common denominator; the recurring character in this narrative is Alteri Investors, which specialises in challenged retailers, and played a pivotal role in safeguarding the future of Brantano.

After purchasing Brantano in late 2015, Alteri entered the company into administration in January, before buying back 140 of its most profitable stores just a month later in a move that saved nearly 1,400 jobs.

It is therefore no surprise that Alteri Investors was also behind the Austin Reed decision, although in this instance it came just one week after it purchased the menswear retailer, after last year loaning it £6 million to improve its online presence.

The natural assumption would be for a similar model to be adopted here, with Alteri buying back the company’s best performing stores and operating a streamlined business that is more cash generative and can avoid some of the cashflow problems that were a factor in its entry into administration, as well as saving many of the 1,200 jobs currently at risk.

Mitigating impact

Of course, it is not all good news – even if 75 per cent of jobs are saved, it still results in many being lost, which has an additional economic impact as well as personally affecting many families.

This is magnified further still when it is a much larger business, such as BHS, which has more than 160 department stores and 11,000 jobs, as well as 20,000 pension holders, who may now need to rely on the Pension Protection Fund.

Another key difference is that BHS is not owned by Alteri, but the possibility still exists that the store can be saved, as there is certainly no shortage of interested parties.

Sports Direct boss Mike Ashley has so far as to say he will save all BHS jobs, but the conundrum for him – or any potential buyer – will be how to operate a successful business model that deviates from the one that has resulted in the company entering administration.

While no business is too big to fail, it is fair to assume BHS will avoid the fate of other former high street favourites such as Woolworths, by focusing on its profitable premises – of which there are around 40 – and using it as a foundation to relaunch the brand.

Brantano, and potentially Austin Reed, have demonstrated that downsizing remains a successful means of navigating administration and remaining buoyant in today’s challenging retail environment, and there is every chance that BHS may follow the same formula.

The reality is that jobs are often lost in these situations and the impact is felt far and wide, but in many cases if the business can be saved, the foundations for success can be rebuilt and the phoenix can rise from the flames, providing light at the end of the tunnel.

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