British Home Stores, or as it is more commonly known, BHS, declared that it was going into Administration in April 2016. This comes just over a year after the purchase of the company for £1 by Dominic Chappell from Sir Philip Green, who owned the company from the year 2000. BHS currently employs 11,000 members of staff and has 164 stores nationwide.
BHS was founded by American entrepreneurs in 1928 in London. They wanted to emulate the Woolworths model, but at a lower price point so as not to be direct competition. The business expanded, increasing its prices to allow it to sell a greater variety of goods, and introducing cafe and grocery services. The company went public in 1933, and continued to grow after the 1939-1945 war. During the 1970s and 1980s the company saw joint ventures, overseas franchise and mergers. In the 2000 Philip Green bought BHS for £200 million, he changed the company from public to private and went on to acquire other high street retailers including Topshop, Burton, Evans, Dorothy Perkins and Wallis, making BHS the second largest retailer in the UK after Marks and Spencers. In 2005 Green went on to purchase Etam UK which included the brands Etam, Amelie May and Tammy. Since 2005 other ventures and acquisitions have been considered, and in 2009 brand concessions were introduced.
The 2015 Sale
In March 2015 Sir Philip Green sold the company to Dominic Chappell for £1, this action has drawn criticism since it has been highlighted that Chappell has been bankrupt twice (some sources claim three times, including an early bankruptcy in 1992) in 2005 and 2009. Chappell has been described by the Daily Mail as a "playboy" and has been widely portrayed as reckless formula 3 driver who is too inexperienced with business to manage money. At the point of sale BHS pre-tax profits were up 3.6% from the previous year, and it has been claimed that Chappell's spending has been the root cause of the loss of value, whilst the BHS Board tried to curb his spending.
BHS Pension Scheme
The main point of contention is the BHS Pension Scheme. It has a £571 million deficit, although if the company were still trading the figures would be calculated differently and the amount would total £350 million. Sir Philip Green has said he will put £80 million towards the Pension fund, amid great public disapproval regarding his role. The Scheme was closed to new members in 2005 and by 2008 was running a surplus of £3.4 million. However as recently as 2013 BHS made a promise to contribute £9.5 million a year for 23 years to the pension pot, which they were held to under the Pensions Act 2004. This was an unusually long plan, and suggests that the Pension Scheme was in trouble, despite the 2008 reprieve. This means that when the company was sold in 2015, there was a deficit in the Pension fund. Sir Philip Green has come under criticism for knowingly selling a business, and thus removing responsibility from himself, for this pension deficit. There is no illegality in Green's actions here, and if Chappell was unaware of the deficit he was inheriting, the responsibility for due diligence would be on his own shoulders. Taking this case in point, Chappell made a pretty bad business decision.
So we know that the Pension Scheme was closed to new members, but maintaining the pensions of existing members in 2008 and back in trouble again in 2013. Something must have gone wrong during the Green administration. Half of the pension assets were invested, and during the financial crisis these stocks lost much of their initial value. Investments made after the financial crisis also did poorly, and the stocks continued to decrease in value. Alongside this on-going issue, company liability for the pensions increased, meaning the investment value was decreasing at the same time that the company debt to the pensioners was increasing. This ultimately led to the deficit Chappell bought in 2015. This highlights the poor decisions Green made with regard to the pension money during his time at the top from 2000 to 2015.
Moving away from the issue of the Pension Scheme, public disapproval has also been drawn towards decisions Green made with regard to BHS finances; dividends and property sales. Shortly after the purchase in 2000, Green sold off 12 stores to a company called Carmen Properties. BHS then rented back these properties at a cost of £12 million a year. Carmen Properties is a Jersey based business, controlled by members of Green's immediate family.
In addition, what appears to be large dividends have been paid over the years. It is thought that the majority of these dividends have been given to Green and his family, including his wife who lives in Monaco. In 2004, £220 million dividends were paid out, at a cost of £118 million more than BHS' pre-tax profits for that year. This wiped out £147.7 million of BHS reserves at the time when the Pension Scheme (just a year before closing to new members) was in trouble. On the surface, it appears that Green has channelled significant amounts of BHS funds away from the business and into his own family. He then sold off the responsibility to pay the BHS debt to it's pensioners, to someone else.
The BHS Brand
British Home Stores is an 88 year old brand, it has struggled to modernise and has been called "dependable and unexciting" with unfashionable clothing and high prices.
A pack of school shirts can be bought in BHS for £8.50, or in Asda for £3.50. Unlike longtime rival Marks and Spencers, who has employed sleek advertising campaigns; high profile celebrities endorsements and sex appeal. BHS has sadly lagged behind. Critics have called its demise inevitable, regardless of financial administration.
There is no doubt that BHS could have befitted from a different marketing strategy, but that's not our game. The problem that we can see is poor financial administration, and this is something that we're familiar with: stepping in and helping our clients in these situations. We have experience in overseeing mergers, acquisitions and conversions, (read our case study on Pro Choice Hair & Beauty for a good example). This can be a tricky process, and making sure all the boxes have been ticked and all the right questions asked, is something we're comfortable doing. This is the kind of project that comes under our Accountancy+ group of services. You see, we're more than accountants.