Bonmarché rethinks rescue bid after weak trading

The struggling clothing chain Bonmarché said that trading in recent months was so poor it was recommending a £5.7m rescue bid from the billionaire Philip Day, less than three months after rejecting it.

The firm, which sells fashion for women over 50 and has 312 shops, said weak sales in the first quarter meant there was a greater risk that pre-tax losses this year would be more than the £5m-£6m previously forecast, making the offer from Spectre – Day’s Dubai-based investment vehicle – more appealing.

What’s the problem?

Physical retailers have been hit by a combination of changing habits, unseasonably warm weather, rising costs and broader economic problems. 2018 saw the disappearance of Toys R Us, Maplin and Poundworld as a result.

In terms of habits, shoppers are switching to buying online. The likes of Amazon have an unfair advantage because they have a lower business rate bill, which holds down costs and enables online retailers to woo shoppers with low prices. Business rates are taxes, based on the value of commercial property, that are imposed on traditional retailers with physical stores. 

At the same time, there is a move away from buying ‘stuff’ as more people live in smaller homes and rent rather than buy. Those pressures have come just as rising labour and product costs, partly fuelled by Brexit, have coincided with economic and political uncertainty that has dampened consumer confidence.

What help do retailers need?

Retailers with a high street presence want the government to change business rates. They also want more political certainty as the potential for a no deal Brexit means some are not only incurring additional costs for stockpiling goods but are unsure about the impact of tariffs after October 2019. Retailers also want more investment in town centres to help them adapt to changing trends, as well as a cut to high parking charges which they say put off shoppers.

What is the government doing?

In the October 2018 budget the government announced some relief on business rates for independent shopkeepers. It has also set up a £675m ‘future high streets’ fund under which local councils can bid for up to £25m towards regeneration projects such as refurbishing local historic buildings and improving transport links. The fund will also pay for the creation of a high street taskforce to provide expertise and hands-on support to local areas.

What is the outlook in 2019?

Some retailers could go under. Weakened by a difficult Christmas – which accounts for the entire annual profits of many retailers, and with further Brexit wobbles to come – retailers are facing a tough 2019. Another rise in the national minimum wage in April and the falling value of the pound against the dollar, which is used to buy goods in the Far East, have also added to costs and hit profits.

Calling on shareholders to accept the offer, Bonmarché said in a statement: “While the board’s view remains that the offer does not adequately reflect the potential longer-term value of the business, the increase in uncertainty that has developed reflecting the trading and financial position of the business during the first quarter of the financial year makes the certainty represented by the offer potentially more attractive in the short term.”

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The offer from Day, who owns more than a dozen retail brands, including Edinburgh Woollen Mill, is pitched at 11.445p a share. Shares were trading at 15p on Tuesday, a day before the latest statement from Bonmarché, and fell more than 20% to 11.38p on Wednesday.

Bonmarché said trading in recent months had been poor because of continued weakness in the clothing market and a lack of warm weather to counteract it. Whereas in the past the expectation was that better weather would boost sales later in the selling season to offset this dip, it said the clothing market was not following the patterns of previous years.

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Day’s rescue plan includes the closure of unprofitable stores, which would lead to significant job losses among Bonmarché’s 1,900 employees. He also wants to cut the size of its head office, review staffing at its distribution centre, reduce clothing ranges and renegotiate supplier terms.

Bonmarché said Day had not yet taken up its invitation to discuss future plans for the business with the board but added that with his retail experience he would be a successful long-term owner.



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