Philip Day, the magnate behind Edinburgh Woollen Mills, has just bought a majority stake in Bonmarche. He’s picked up 52% -ish of the shares at under the current market price. A reasonable expectation is that remaining shareholders will take that offer and the company will move private.
But, what’s he doing here? We all know that retail is failing, online is eating bricks and mortar, what’s the point of piling in here?
The answer is rents.
Jobs and shops at struggling fashion chain Bonmarché are under threat after UK billionaire Philip Day tabled a takeover bid. The deal values the Yorkshire-based chain, which began in 1982 and now has 312 shops specialising in clothing for the over-50s, at around £5.7m. Edinburgh Woollen Mill Group owner Mr Day warned he expected a “material reduction” in headcount at the chain.
OK, right. But think abut this the other way around. When times are good in retail who gets the money? That’s right, the landlords from whose premises the retail happens. This is why coffee shops rarely make good money, those that would have high rents. Actually, that was Starbucks UK’s problem, Sure, great brand, trading great guns, all the money being eaten by landlords.
So, when retail ain’t doing so good then rents come down, right? Nope, not in England they don’t. Upwards only rent reviews is written into near all leases. So, landlords can sit there and collect the money until the retailer goes bust. Might not be very nice but they’ve no obligation at all to temper rents according to market conditions. Except:
Mr Day said he would do a “store-by-store profitability assessment” with the aim of closing underperforming shops unless it was possible to implement “reduced rents, staff reductions or other cost saving measures”.
Get a big and well known negotiator on the other side of the desk and the landlords will consider. Or it’s possible to do a CVA and force negotiation. So, that’s what will be done. All will be reminded that there’s a perfectly viable business here as long as it doesn’t have to spaff so much on rent. So, stop the spaffing and we’ll carry on. That is, landlords, reduce your rents.
This is basically the Mike Ashley story at Debenhams too. The value is in being able to force rent reductions.