BHS chief executive Darren Topp speaks exclusively to Retail Week about why he believes the department store group has a future.

Darren Topp

Darren Topp

Darren Topp

BHS chief executive Darren Topp called me into his office yesterday to talk in depth about the retailer’s proposed corporate voluntary arrangement, an insolvency process deployed to slash rents on stores.

Unless the retailer’s landlords agree to bring rents down, BHS will not have the financial firepower to meet debt and working capital needs beyond the next rent quarter date.

The development looked inevitable to many in the retail industry.

Loss-making BHS has been struggling for years to restore its once-high status among shoppers but its efforts have not borne fruit.

Not even Sir Philip Green, who sold BHS for £1 to present owner Retail Acquisitions a year ago, could revitalise it.

So what makes Topp think that he can win a place in the hearts of hard-nosed consumers who have a wealth of choice of department and fashion stores?

And if the future for BHS is bright, why has he had to initiate a CVA?

Property problem

On a fundamental level, the answer is straightforward.

BHS, says Topp, does not have a sales problem. What it has is a cost problem, specifically on property. The CVA plans do not affect suppliers of other goods and services at all.

About half of BHS’s 164 UK stores are profitable. However the rest, he maintains, are hobbled by above-market rents.

“There’s been a whole raft of actions that have had a positive impact but one of the things we’ve not been able to get traction on is the rents”

Darren Topp, BHS

If the CVA is successful, rents in 47 stores would be reduced “to market levels” while rents in another 40 need to be cut “substantially” if the branches are to be viable.

“We have a traditional retail estate,” says Topp. “At its core, it’s high streets. The rents were negotiated in a different world. We think the most effective way [to address this] is a CVA.

“A lot of the rents are not at market-level. Savills has done some work for us on this, we’re not plucking it from thin air.”

In-store improvements

Every week there are about 1 million transactions in BHS stores. That is evidence, says Topp, of the retailer’s enduring appeal – and it is an appeal that he is in the midst of bolstering. If his plans are successful, he expects BHS to be making a profit within two years.

The retailer has been sprucing up its shops – 23 have been done to date – by improving the proposition, rolling out a convenience food offer and improving in-store eateries.

BHS jpg

BHS jpg

BHS has launched a raft of new initiatives to revamp the brand, including a food offer

The last two initiatives have been undertaken with partners Booker and Compass, both credible names whose willingness to work with BHS indicates the potential they see in it.

“Some of these stores are trading double-digit better than the business. What we’ve shown is what the future of the business looks like,” says Topp.

“There’s been a whole raft of actions that have had a positive impact but one of the things we’ve not been able to get traction on is the rents.”

There are more retail improvements to come. The number of product options will be reduced, pricing architecture clarified and discounting – which has seemed to be a permanent feature of the stores – reined in.

“As we focus on fewer brands that resonate with customers we’ll rebalance to more day-in, day-out value – not necessarily the lowest price, but we’ll always be out with some great prices – and we’ll start to lose the very aggressive blanket promotions,” maintains Topp.

Ecommerce opportunities

Similarly online operations are being prioritised. The retailer has just struck a three-year deal with IBM that it is hoped will turbo-charge ecommerce.

At present BHS’s online sales are about 12% of the total, and Topp wants to bring that to nearer 20%.

“It’s a critical opportunity,” he says. “We’re growing exponentially but from a small base.”

Those retail changes will be driven by a leaner structure at head office and rationalisation of some in-store roles.

“As we focus on fewer brands that resonate with customers we’ll rebalance to more day-in, day-out value”

Darren Topp, BHS

For the CVA to be a success, it must win the backing of 75% of affected creditors by value. BHS has more than 100 landlords, including fashion group Arcadia.

Over the next month, Topp will hope to convince them of the merits of his plans.

There will be tough negotiations. After all many CVAs in the past, such as at Focus DIY or JJB Sports, have not ultimately preserved the affected businesses – they ended up in administration.

Founded in 1928, BHS is now not far short of its 100th birthday.

If Topp can get the CVA through he is convinced that the business will see out a century and be in fit shape to trade for many years into the future.

“We feel confident we’ll get over the 75% threshold,” he concludes.

Whether he does or not will become clear on March 23, the deadline for the CVA to be accepted and the day that Topp hopes will herald a new dawn for BHS.