There’s more turmoil on the high street following the last minute reprieve for the House of Fraser department stores. This time it’s Homebase, the struggling DIY chain, that’s preparing to announce the closure of up to 80 of its 250 stores, leading to the likely loss of around 1,000 jobs.
Homebase has already shut 17 unprofitable stores, but unfortunately, that wasn’t enough to keep the loss-making chain afloat. It had already confirmed that a further 23 stores would be closing as part of a Company Voluntary Arrangement (CVA) involving between 60 and 80 stores in total.
The DIY chain, which was bought for £340 million by Australian firm Wesfarmers two years ago, was sold to the restructuring firm Hilco for just a pound in May this year. Since then, it has cut 300 jobs in the Milton Keynes head office and the horticultural buying office in Swindon.
Homebase Closure Indicative of a struggling DIY sector
The challenges faced by Homebase are also being felt by a number of other DIY stores. The sector has been hit by the slowdown in the housing market, with the squeeze on consumer spending also taking its toll. That’s being compounded by the onslaught brick-and-mortar stores are facing from online retailers and bargain brands Like Home Bargains and even Aldi.
Kingfisher plc, the owners of the B&Q brand, blamed ‘soft demand’ for sales volumes which fell by 9 percent in the three months to May. Travis Perkins, which owns Wickes, has also been considering whether the time might be right to offload the chain in the face of falling sales and plunging profit margins.
CVAs are being widely used in the retail sector
A Company Voluntary Arrangement (CVA) is an insolvency procedure designed to give struggling businesses the opportunity to restructure their operations and repay their debts over time. They also enable retailers to alter or exit existing deals they have with landlords. CVAs have already been used by a number of leading retail brands this year including New Look, Carpetright and Mothercare, and restaurant groups like Jamie’s Italian, Carluccio’s and Prezzo.
However, while they are often successful at saving jobs and giving struggling businesses the opportunity to jettison unprofitable stores, they have also been criticised by landlords, who believe the process is being is misused.
CVAs should not be entered into lightly
The British Property Federation has called for an urgent government review of the growing use of CVAs, as it says the process is being misused to the detriment of landlords. Just last week, a group of landlords launched a legal challenge against House of Fraser’s CVA which was settled out of court.
However, restructuring experts suggest that landlords are simply failing to accept that the high street has changed and sprawling retail premises with sky-high rents are a thing of the past. Hilco, the restructuring firm that now owns Homebase, is expected to file a CVA imminently.