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The Rout Of The Retailers And A Stern Lesson For All Trustees - And Their Liabilities

29 Apr 2016

Justin Urquhart Stewart, Head of Corporate Development

With the news of the BHS bankruptcy and failure to find a new owner, we look at the state of its pension scheme. In particular, the role of the pension fund's trustees is analysed.

The rout of the retailers and a stern lesson for all Trustees - and their liabilities

I think most would agree it wasn’t a good week for the High Street. It has not just been BHS or even the once highly regarded Austin Reed, but a tale of decline and failure in the UK retail world that makes for tortuous reading. It may seem strange given the economy is still doing quite well and income levels have started to run ahead of inflation for the first time in some years. At last people might actually be better off in real terms. However do they actually feel it?

Certainly retailing has been doing well over the past few years and this was boosted by the very helpful bonus for George Osborne due to the PPI claims payments from the banks. With an average payment of £5,000, this was a timely filip to the retail expenditure figures. You only had to look at the number of new cars being ordered to see the effect that this was having."With encouraging retail figures and consumer confidence still in positive territory, why on earth are we seeing such high profile retail failures?"

So with encouraging retail figures and consumer confidence still in positive territory, why on earth are we seeing such high profile retail failures?

Well, since 2008 I can count 18 high street names that have disappeared. The reasons though seem to be endless and there is not just a single commercial infection that can be blamed. Some failures are down to technology, like Blockbusters in 2013 where videos and even CDs were just bypassed, and thus the very reason for the stores’ existence vanished. The same applied to HMV although they did have other reasons to exist but none strong enough, such as software games, to enable them to survive on their own.

Then there was Jessops where camera sales again had changed as camera phones bypassed the popularity of "proper" full service cameras for most people apart from the professionals and keen hobbyists.

Others have been through poor management and either not investing in or keeping the outlets up to date. Woolworths would be a good case in point. Woolies had in effect forgotten why it was there. It as a brand that we all knew, had some considerable affection for, but increasingly never used. The stores were of course the original Poundlands of their day. However, as the business grew and expanded, so did its retail ego, such that management felt they could do a lot better than just being the cheap and cheerful end of the high street. From Ladybird kids underwear (I remember it well although I am pleased to say I am not wearing it anymore) through to the ‘pick and mix’ sweeties as a treat for tiresome children whinging to their oppressed and tired mothers. So Woolies forgot its heritage, and we forgot to go to Woolies.

Then there have been those which have just failed from anything from bad management through to increased competition. These could include Zavvi, FocusDIY, Jane Norman, TJ Hughes, Past Times, Barratts and Tie Rack. Comet was high profile name, but, in the cut-throat margin business of white goods, the competition was extremely sharp and the arrival of AO providing an online commoditised service for these products left the Comet network with no room.

Then there was Oddbins. Whilst wine drinking had been increasing, the supermarkets took their volume away, and Majestic seemed to take their fan base as the place to go to for wine advice and support. In the fashion world, JJB Sports was always going to find it difficult up against Sports Direct and the aggressive marketing of Mr. Mike Ashley, which seemed to sweep all before it.

The issues around Phones4U seem to have been more numerous, as have been the questions around the demise of the fashion brands of Aquascutum and now Austin Reed.

Underlying many of these deals and difficulties, there have been the Private Equity hunters. Some of these are ‘white knights’ who are very experienced and fighting a good cause, trying to do the right things. And then there are others, the ‘black knights’, with an eye to getting hold of the cash and assets at knocked-down and distressed prices - dare I even mention the potential for some asset stripping as well! (I must wash my mouth out). These Private Equity firms are the ones who will have finally lost the ‘pass the parcel’ game of private equity whereby they sell companies on to each other after adding more debt to the already leaky vessel and have taken their fees accordingly. The one (Private Equity firm) holding the investment parcel at the end, i.e. when the debt finally gets too high to service, will be the one that has to suffer the loss and the embarrassment of finally winding the business up.

So last week we saw the fiasco that was and is BHS. As I write the issues surrounding Sir Philip Green and his certainly generous dividend payments to his family from his set of companies will be coming under greater scrutiny. However, it is the pension that most concerns me, not just for the 11,000 employees, but also for the 20,000 eligible to claim from the pension pot. Whether Sir Philip was right or wrong is still to be determined, but my anger is directed at the Pension Trustees who should have been not only fully aware of any shortfall, but also prepared to do something about it as is quite obviously clear that there was a very significant black hole. Pension trustees should remember their liabilities and, for some, this may well be personal in that their own assets may be at risk. A lesson here for all trustees: even being a ‘professional’ trustee may not be enough to protect you and your family's assets.

So while it remains to be seen as to whether they were asleep at the helm, it certainly seems that they did very little to try and control the situation or intervene in the deal to sell BHS to the new management team. To merely fail and rely on the largesse of the Pension Protection Fund (PPF) is thoroughly irresponsible. The fact that the PPF can cut 10% from the pension entitlements and even take an equity stake in the business is of little comfort to those who have probably had the largest part of their personal life savings tied up in this. So, as well as castigating whichever part of the management is responsible for this failure, I want to see the Pension Trustees brought forward to explain their actions, or otherwise, and if found wanting they too should suffer appropriate punishment by being made to stand by the liabilities.

* * * 

And finally…It is always a quandary - you escape from somewhere, but where to hide until the heat is off? Well one man had (what he thought) was a good answer. A certain Texas county jail inmate escaped custody while receiving treatment in a hospital only to be found in the dishwasher of his girlfriend's apartment in boxer shorts and wearing handcuffs with the chain severed according to the sheriff's department.

"He took out the racks and made himself a nice cubby-hole" said Chief Deputy Glenn Blank of the Jasper County Sheriff's office. The inmate, Wesley Evans, 20, was captured was taken back into custody after an escape that only lasted about 24 hours.

Evans had been in jail on charges of aggravated robbery, auto theft and arson. He was later taken to the hospital for treatment of a swollen hand.

He must have been either astonishingly small or found a huge washing up machine. So next time it’s your turn to empty the machine, just check to see if there is a small ‘perp’ lurking under the plate rack.

Anyway he should have used Calgon to preserve his freedom – as apparently things “live longer with Calgon” - sorry not supposed to advertise.


Have a good week!


Justin Urquhart Stewart
Seven Investment Management

Justin Urquhart Stewart is one of the most recognisable and trusted market commentators on television, radio and in the press. Originally trained as a lawyer he has observed the Investment industry for 30 years whilst in corporate banking and stockbroking, and has developed a unique understanding of the market’s roles and benefits for the private investor.


This article represents a personal and light-hearted view from 7IM, and is based on current financial news and events around the world.  Its content should not be used for investment purposes and you should contact an independent financial adviser before making any investment or financial decision.

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The value of your investments and the income from them may go down as well as up, and you could get back less than you invested.

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