Vultures circle some 200 UK shopping centres on brink of administration

26 November 2018 Consultancy.uk

A new report has found that over 200 shopping centres in Britain are in danger of collapsing into administration. As the UK’s retail sector continues to falter amid a fall in the pound ramping up import costs, stagnant wages and high inflation have continued to pressure consumer spending power throughout 2018.

2018 has seen the number of profit warnings by FTSE-listed retailers double since 2017, while the UK economy as a whole has seen profit warnings hit a high-water mark. Earlier in the year, a study by EY found that the dramatic rise has seen the number of top retailers flagging concerns in the first half of the year at a seven year high, as the sector continues to be plagued by rising costs and subdued spending.

British retail is currently enduring its most challenging period in five years, according to PwC. Averaging 14 closures per day, the UK saw a net closure of 1,123 stores in the first half of 2018 alone, with worse expected for the year as a whole. While this is often positioned as a crisis for the UK ‘high street’, the issues nonetheless stretch to shopping centre retailers.Vultures circle some 200 UK shopping centres on brink of administration

Now, a new survey from the National Retail Research Knowledge Exchange Centre has found that more than 200 shopping centres across the UK are teetering on the brink of administration, as their supply chains and major anchor stores experience rapid decline. Speaking to Retail Gazette, National Retail Research Knowledge Exchange Centre analyst Nelson Blackley said small towns are in danger of “catastrophic” ramifications as a result of this.

Blackley explained, “If the major anchor store moves out, that has a halo effect on other stores in that centre. It’s a downward spiral and you can’t fill shopping centres with nail bars and vape shops. People are suggesting a number of leading national retailers are on the edge and may close and that would bring shopping centres down with them. The collapse of BHS, two years ago, left empty units in around 200 shopping centres and more than half of those large, empty units have not yet been filled.”

Such a large-scale collapse would have a dire impact on local economies, potentially costing thousands of jobs. As a result, crime and vandalism could well increase in those locales, a factor which Blackley suggested was increasingly likely, due to the debt-encumbered nature of many centres. The majority of the locations at risk are reportedly under the ownership of private equity firms in the US, as are many stores which have collapsed during 2018.

According to Blackley, “They have to return money to their investors. That’s not looking very likely. Frankly, the centres are either going to have to be sold at a lower price or have capital injected in order to regenerate, and we don’t see banks having an appetite for that.”

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Debenhams administrator handed legal threat from Sports Direct

24 April 2019 Consultancy.uk

Earlier in April 2019, the long-suffering high street entity of Debenhams finally collapsed into a pre-pack administration, wiping out equity for shareholders including Sports Direct. Now, Mike Ashley, the controversial owner of Sports Direct, has threatened legal action to remove FTI Consulting from its role as Debenhams’ administrators, following the obliteration of his stock in the company.

As the retail sector in the UK continues to endure a torrid period, British retail stalwart Debenhams endured a spectacular fall from grace. The high street ever-present was founded in the early 19th century, with a single store in London, before expanding to 178 locations across the UK, Ireland and Denmark. However, following a string of profit warnings and several rounds of lay-offs, the company engaged advisors from Big Four firm KPMG to consider its options in the Autumn of 2018.

At the time, Debenhams Chairman Sir Ian Cheshire insisted that the chain was not heading for insolvency, or that it was actively embarking on a company voluntary agreement (CVA). Nevertheless, Debenhams fell into administration in Spring 2019. The news saw Chad Griffin, Simon Kirkhope and Andrew Johnson of FTI Consulting appointed as joint administrators, immediately selling the retailer to a newly incorporated company controlled by secured lenders.

Debenhams administrator handed legal threat from Sports Direct

The pre-pack administration deal meant Debenhams was able to access significant additional funding, preserving 165 of its stores, though plans to close around 50 under-performing stores in the next three to five years remain in place. At the same time, the deal maintained its commercial relationships with suppliers, employees and pension holders. However, it also effectively led all of Debenhams’ previous shareholders – including the retail magnate Mike Ashley – to lose their equity.

Ashley’s Sports Direct firm had increased its stake in the department store chain in 2018, but stopped just short of the 30% stake which would require it to put in a formal offer to fully acquire the business. The transaction fuelled speculation that Ashley was waiting for the opportune time to acquire Debenhams, particularly in the wake of his swoop for House of Fraser. Ashley’s deal there enabled Sports Direct to buy the firm out of administration in a pre-pack deal, allowing the new ownership to controversially wash its hands of the company’s pension scheme in the process.

While some believed this was Ashley’s intent for Debenhams, FTI’s decision to sell the store to its creditors has instead resulted in a sizeable loss for Ashley. The hit of around £150 million from his loss in Debenhams comes after an analysis by The Sunday Telegraph suggested the tycoon had accrued “a sprawling web of stakes” in rival companies, and that he may be nursing losses of more than £500 million.

Bad press

Ashley – who recently lost a complaint ruling by British press regulator Ipso allowing the Times to note that he shared many characteristics with North Korean dictator Kim Jong-un – has been outspoken in his contempt for FTI since the news broke of Debenhams’ sale. The Sports Direct CEO has called for the resignation of FTI from its role as administrator, after his stake in the department store chain was wiped out. The Guardian stated that a letter to FTI saw Sports Direct’s lawyers even threaten legal action to remove the advisory firm as administrators because of a conflict of interests.

According to the reports, the document claimed, “[Sports Direct] will do everything available to it to unwind the damage caused to the company and other stakeholders (including large and small shareholders) by the events of today including but not limited to challenging the appointment [of FTI as administrators] and all consequences of it.”

The letter allegedly claims that FTI had been involved with Debenhams since the second week of February, and had engaged with the group’s lenders. The legal team reportedly suggested that this would consistute a conflict of interest, because FTI sold the retailer’s operating companies to the same lenders via a pre-pack administration.

This comes weeks after Sports Direct was itself accused of becoming overly cosy with a professional services firm, which has seen its auditor Grant Thornton placed under scrutiny for its continued role with the firm. In 2018, it was reported that Grant Thornton was set to stand aside from the role due to competition rules. It had held the role since before Sports Direct floated on the London Stock Exchange in 2007, while Phil Westerman, the Partner at Grant Thornton responsible for signing off Sports Direct's accounts, had himself undertaken the work for five years. 

Neither situation is understood to have changed, leading to the questioning of the independence of Grant Thornton’s auditing work with Sports Direct. Such is the level of bad press surrounding the retailer, that the Big Four of the accounting and advisory world – wary of incurring a new scandal of their own – are said to have ruled out taking the contract over.