The fate of DIY retailer Homebase will be decided on Friday, when creditors vote on a proposed CVA.
Whether Homebase gets thumbs up or down for its plans could be a close call. CVAs have become increasingly controversial, as was clear in the opposition, particularly from landlords, to House of Fraser’s plans under its former ownership.
There is talk of some landlords taking a similar position this time, but there are big differences between the two situations.
Unlike House of Fraser under its former ownership, there is a successful business to be unlocked in Homebase. Only two years ago, it attracted a £340m price tag when Wesfarmers came knocking.
“Homebase has acted quickly to cut its cloth to the straitened circumstances in which it found itself”
Homebase’s subsequent problems, as the new owner set about converting it to the Bunnings model, were self-inflicted – Wesfarmers managing director Rob Scott said so himself.
At the time of its sale to the Australian company, Homebase had made a benchmark operating profit of £34.3m over its most recently reported half-year.
Homebase’s earnings on the same basis had risen over three years and a productivity plan – including store closures, better availability and more targeted promotions – had put the business on a firmer footing.
That shows that, if handled correctly, Homebase could have a successful future. The foundations are in place to build that future.
Unlike House of Fraser, Homebase has credible owners. Hilco, which picked up Homebase for a nominal £1, has frequently divided opinion in retail.
However, its most recent high-profile acquisition in the industry, entertainment specialist HMV in 2013, has defied the sceptics to remain trading on high streets today – it even won a ‘turnaround of the decade’ accolade.
Taking the pain
Unlike House of Fraser, Homebase has credible management. In contrast to House of Fraser’s retail newcomer Alex Williamson, who was thrown in at the deep end, Homebase chief executive Damian McGloughlin knows DIY retail well.
He was formerly an executive board member at market leader B&Q where he held a variety of positions, rising to retail director. Earlier this month, he brought two former colleagues into senior roles at Homebase, adding to the bench strength necessary for a turnaround.
Unlike House of Fraser, Homebase has acted quickly to cut its cloth to the straitened circumstances in which it found itself.
The retailer is asking landlords and other creditors to take the pain of a CVA but it has also demonstrated that it is doing the same itself.
Unlike House of Fraser, Homebase has followed best practice in drawing up its CVA proposal, according to the British Property Federation (BPF).
While House of Fraser was blasted by the BPF for a “highly insensitive” approach, Homebase was praised for ensuring “property owners’ interests have been properly taken into account”.
“Creditors’ concerns about CVAs are understandable – the process is not victimless”
Ultimately, it will be up to creditors such as landlords to decide on Friday whether Homebase lives to fight another day.
Their concerns about CVAs are understandable – the process is not victimless, it hits others ranging from property owners to pension funds in the pocket.
Some landlords may feel they have other options. Growing retailers such as B&M and The Range may be alterative tenants, or even Amazon, which is understood to be interested in some Homebase stores slated for closure.
But if Homebase’s CVA is not approved, administration will swiftly follow.
If that happens, many creditors will likely be hit just as hard, if not harder, than if they had, however reluctantly, nodded through the proposals.
That’s why, in response to Homebase’s DIY SOS, creditors should throw out a lifeline and keep it afloat.
Are landlords getting a raw deal from CVAs?
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Opinion: Why Homebase deserves a lifeline from creditors