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BHS’ troubles should be a warning for other retailers

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Bloomberg

BHS, the dowdy department store, will live to fight another day. The struggling privately owned retailer has been given a lifeline after landlords voted to approve a restructuring that would ease its rent
burden.
The company’s near miss can only partly be seen as consequence of the 15 years it spent under the leadership of retail entrepreneur Sir Philip Green, when it never got its groove back after falling out of fashion, and received limited investment (though he did manage to extract at least 200 million pounds ($283 million) of dividends for himself). Green sold it for one pound a year ago to a little-known group of accountants and lawyers.
There are broader forces troubling European retailers, and they proved too much for BHS, which is saddled with long leases — up to 100 years in one case — and was stuck paying high rents it had agreed to many years ago. It’s now negotiating either rent reductions or lease terminations for about 40 of its 164 stores. Across the continent, the trend for sales of everything from clothes to cushions to migrate online is picking up. Of course, with the rise of Amazon, BHS and other variety stores selling a huge range of products have been living on borrowed time — Woolworths succumbed to the trend in 2008.
But mobile transactions are the new wrinkle. Online sales account for about 13.5 percent of UK sales, according to AT Kearney, ahead of about 10 percent in the US.
The addition of mobile has turbocharged demand, and goods are now as likely to be bought by the tap of a smartphone screen as a click of a mouse. That’s putting even more pressure on retailers to make sure their stores are put to good work, and many are finding they can’t.
High street retailers are aware they’re saddled with too much space: according to Euromonitor, non-grocery selling space in western Europe fell to 445 million square meters in 2015 from 453 million in 2010. And efforts to tighten up are not confined to Europe. In the US, Gap, as well as department stores JC Penney, Sears and Macy’s are among those closing stores.
Spain’s Inditex, which owns the Zara chain, is growing its space more slowly, while watching teh market closely.

It has strong brands, accelerating sales and virtually no debt, and has realized that the combination of flagship stores in prime locations and an online presence is a winning one. So if even Inditex has decided to rein in store openings, others should take note.

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