The high street rebrand that no one asked for is headed for the rocks. TG Jones, the chain hatched from the bones of a 450-strong WH Smith department store, is staring down the bailiff's barrel after racking up millions of pounds in unpaid debts, with the private equity owner admitting the business could be bankrupt before the end of the summer.
In a 214-page restructuring letter circulated to creditors last week, Modella Capital, the buyout house which snapped up the high street arm of WH Smith earlier this year, revealed the retailer was sitting on £3.4m of unpaid business costs, another £4m owed to suppliers and £8.4m of tax allowed by HMRC so far. Add it together and the chain is in the red for the best part of £16m before the lights blink on.
“In recent weeks, the business has started to receive a number of letters of demand and summons due to non-payment of business tax debts,” admitted Modella in this document. “Without funding to pay these outstanding business rates or a compromise on these fees, business is at risk of local authorities seeking to take enforcement action.”
In plain English, that means bailiffs at the door, or taking stock from a store or filing a petition to close the company itself.
A name that no one can see
The whole story has a mysterious air of agreement gone sour. When Modella bought the high street estate from WH Smith, which has stopped focusing on its profitable travel segment at airports and train stations, it was denied the continued use of the WH Smith fascia. The result was TG Jones, an established name plastered over hundreds of stores that housed one of Britain's best-known brands.
Trade, predictably, fell. Another owner of the property, who asked that his name be withheld, did not say shut up. “They bought the business and rebranded it with a name that had lost the joy that was associated with it,” he said, describing the place that survived as “a portfolio under a store that sells God knows what”. The foot, he added bluntly, “fell off the cliff”.
He is not the only one who is angry. Modella is now asking more than 120 shop owners to accept three-year rent holidays, three years without actually getting anything, while hundreds more have been told to swallow rent reductions of between 15 and 75 per cent. If they refuse, the company has warned that it will run out of money by the end of June.
Westminster is turning up the heat
The proposals have caused confusion in Westminster. Justin Madders, a former employment minister and member of the Commons business and trade select committee, accused Modella of using a “head I win, tail the taxpayer loses” model.
“When workers lose their jobs, councils lose money and the community is left to bear the cost,” he told The Telegraph. He was particularly scornful of the licensing arrangements buried within the restructuring plan, where TG Jones was required to pay millions of pounds in fees to other parts of the Modella ownership structure in order to gain the right to use the very name it was forced to use.
“What remains strong,” said Mr Madders, “is that while councils are still chasing unpaid business rates and HMRC are offering to take a breather over millions in deferred tax credits, the company's restructuring documents show millions are piling up in license fees paid within a wider ownership framework to use the new TG Jones brand name.”
It's the kind of plan, common enough in independent equity playbooks, that often looks indefensible when councils across the country are told to bide their time.
'Soul-sucking off the highway'
For all the talk of atrocious trading conditions on Britain's high street, retail analysts are not convinced that TG Jones can take refuge behind macroeconomic excuses. Stephen Springham, head of UK retail research at property consultants Knight Frank, pointed out that books and stationery – the very heart of WH Smith's proposition – was “the least performing retail category last year, bar none”.
“They can't blame market conditions. It's a real shame,” said Mr Springham, before issuing the worst decision the sector has heard in years. The takeover, he said, was “probably the worst example we've ever seen of private equity taking the life out of the high street – the only one I'd say was worse was BHS”.
The comparison to Sir Philip Green's crumbling department store is not one any private sponsor wishes to invite.
150 closing and counting
Internally, the message from management is clear. Alex Willson, the chief executive who was parachuted in to run TG Jones, told staff last week to prepare for the closure of up to 150 stores as landlords open break clauses that require just 43 days' notice. An expiration will follow.
“We cannot continue as we are or there will be no business in the future,” Mr Willson warned staff.
Creditors will vote on the restructuring plan in late June, and a High Court hearing is scheduled for June 29 to decide whether the proposals can be approved. Teneo, a private equity restructuring company, is leading the initiative.
Several landlords are already planning an uprising. “The most diligent landlords, like us, will do everything they can to get them back and give them to someone else,” one told The Telegraph. “We will do better with other vendors.”
For SME suppliers and small landlords with one-stop shop exposure, the calculations are even more brutal. They are owed real money by a business that has clearly told them it can't pay, sitting under an ownership structure that continues to extract licensing fees for a product that has little value for what it has changed.
Modella declined to comment.
