Retailers can benefit from capital access, external discipline

Publicly traded retailers can get a bad reputation. The spotlight shareholders can train on their inner workings can reveal cases of excessive pay, ill-conceived strategies and savage job cuts.

But privately owned BHS, which may enter administration as soon as today, might have been better off had it issued shares.

BHS was part of Philip Green's Arcadia group until March 2015, when the retail billionaire sold it to Retail Acquisitions, a little known group of accountants and lawyers for one pound.

Green had been trying to sell loss-making BHS for years. While he'd offloaded swathes of stores to Associated British Food's Primark, the core that remained had become tired and in need of investment. Shareholder pressure for a revamp, and equity analysts opining on the need for a remedy, might have forced spending on an update.

BHS is also saddled with high rents arranged many years ago. Exiting leases can be expensive -- requiring more investment. But doing so would have created a leaner, more efficient chain.

Having a shareholder base to tap would have made funding for that necessary spending easier. Investors don't always approve of additional funding -- it can be like throwing good money after bad -- but they might well have approved of BHS's strategy.

BHS's management wanted to overhaul stores and focus on older shoppers, sensible enough given the spending power of the gray pound and the obsession with chasing younger customers seen in rivals such as Marks and Spencer. And BHS management, led by Darren Topp, wanted to put in more food concessions -- again, a rational move given the trend for convenience purchases to top up big weekly shops. 

There's a case to be made that shareholders would have voted for BHS to raise the money it needed. They also might not have allowed the chain's troubles to get so bad in the first place.

Bad Times on the High Street

China, Brexit, growth fears have hit valuations for European retailers

Source: Bloomberg Intelligence

The greater scrutiny by outside investors -- as well as the early warning signal from share price movements -- may also have forced intervention on BHS's pension fund. The company's shortfall has widened to 571 million pounds ($825 million) based on the cost of an insurance company buying out the liabilities. That's an obstacle for any prospective rescue mission.

There's a contrast with M&S, which also had to tackle a pension gap. Former Chief Executive Stuart Rose pledged in 2007 to cut the shortfall as part of a broader company turnaround that he promised would improve returns to shareholders. 

The company has taken a series of actions over the years to tackle its pension obligations, including using some of its freehold properties to help meet pension liabilities. This has paid off. At the last three-year actuarial pension valuation, M&S had a statutory surplus of 204 million pounds.

It worth noting that when Kesa, now Darty, offloaded Comet in 2012, it retained responsibility for the electrical retailer's pension liabilities. This was prudent. Comet went into administration less than a year later. Had Kesa, which is publicly traded, not shouldered its appropriate responsibilities at the time its management might have come under scrutiny. 

Sports Direct gives a timely example of the benefits of shareholder pressure. Also controlled by a maverick retail entrepreneur -- Mike Ashley -- the chain has seen its sales suffer over recent months. It looks like this is due to Sports Direct not having enough big brands, and too much of its own in-house labels in stores. Analysts have pointed this out, and the 45 percent drop in the share price since the beginning of December reflects their dissatisfaction. 

There is no guarantee that BHS would have survived had it been listed. There are plenty of examples of publicly owned retailers going under: HMV, JJB Sports and Clinton Cards.

But the extra muscle of the public markets would have at least given BHS a fighting chance.

    This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Andrea Felsted in London at

    To contact the editor responsible for this story:
    Jennifer Ryan at

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE