BHS administration proves brands reliant on heritage are vulnerable

With confirmation today (25 April) that BHS has filed for administration, its demise is proof that brands can no longer ride on past glories and must innovate to survive.

Up to 11,000 jobs and 164 shops are currently at risk as administrators Duff & Phelps look to find a buyer for all or part of the 88-year old high street retailer. If a buyer for BHS cannot be found, BHS is set to become the biggest high street collapse in the UK since Woolworths in 2008.

What next?

Sports Direct had looked like the most likely outcome for picking up the BHS estate. However, its decision to pull out of negotiations is believed to have triggered BHS entering administration.

Anusha Couttigane, a fashion analyst and insight manager at ORESA, expects a discount fashion rival to pounce on the 164 sites. “It’s likely to generate interest for either expanding discounters that speak to the local demographic or established value players that want to relocate to larger premises within the area,” she says.

“Good examples could be businesses like Poundland, Tiger, H&M or Primark. It could also represent a good opportunity for supermarkets looking for generous metro sites.”

However retail consultant Graham Soult is of a different opinion.

He counters: “We are now in quite a different situation from when Woolworths collapsed seven years ago, as many of the retailers who took over Woolworths’ largest branches – Primark, H&M, TK Maxx and Wilko, for example – are themselves reaching saturation, and are already represented in most of the locations that BHS’s likely demise will free up. Sports Direct, already talked about as a possible suitor, will no doubt take some sites, and there is still room for retailers like B&M to grow.”

He says it’s a surprise BHS lasted so long, with its outdated store formats and slow approach to online retail the two biggest errors.

“I’d argue that BHS is in a worse position than Woolworths was. Woolworths was at least profitable for the bulk of the 2000s, BHS hasn’t made money for years. It hasn’t changed since the 1990s.”

Graham Soult, retail consultant

A cautionary tale for mature retailers

BHS, which has debts of more than £1.3bn, will become a cautionary tale for established UK retailers, according to Soult, who says strugglers such as Beales could soon follow into administration.

He explains: “Many of the remaining retailers on the UK high street that have failed to move with the times, or that have lost their raison d’etre, have already been culled – either years ago, like C&A, or certainly since 2008 (JJB, Borders, Zavvi, Ethel Austin and the like).

“So, BHS is the last of a pre-digital generation, in a way.”

Historic British fashion retailers such as M&S could also be at risk, according to Couttigane. She says that fashion retail has become diluted in the UK, making it harder for brands such as BHS and M&S to win back customers lost to trendier rivals.

“It’s evident that M&S continues to struggle and [what’s happening to BHS] says a lot when you look at the target markets of both businesses. Both cater to more mature audiences and, in terms of clothing ranges, both have had major issues at curating collections that really speak to this audience,” she explains.

“This is symptomatic of an increasingly diluted fashion market where there is so much choice. The makes it much harder to win back customers in the fashion sector than, for example, the grocery sector. We’ve seen grocers recover from things like the horse meat scandal as they collectively respond to growing demand for convenience. That is because people will always need to eat and consumers like getting fresh produce. In the fashion sector, recruiting customers is not simply a matter of opening stores closer to home and, although consumers are trend-driven, access to fashion is nowhere near as time sensitive as access to food.”

M&S
After years of falling GM sales, experts believe M&S is suffering from similar problems to BHS

Rise of online

Unlike the supermarkets, which have long struggled to make ecommerce trading profitable, online fashion brands such as Asos and Very have grown rapidly over recent years. In part, this is due to the lower cost of delivery that clothing entails.

And fashion brands that don’t treat digital as a priority are “no longer fit for purpose” according to Richard Lim, CEO at Retail Economics.

He warns: Consumer behaviour is evolving at a faster pace than many retailers can cope with.

“BHS is an example of a traditional British high street retailer who is burdened with too many stores with an excessive exposure to our dwindling high streets.  It has been unable to adapt fast enough to the new dawn of consumerism which is being driven by the widespread adoption of digital and mobile technologies. These traditional retail business models are no longer fit for purpose.”

Couttigane says fashion brands that don’t finesse their online offer could do more damage than good. “People are willing to wait a few days for online fashion orders, especially if it means they can save on the cost by getting free click & collect. But the availability of rival fashion ranges online also means that any fashion retailer in the UK that does not meet expectations when it comes to online display and delivery runs the risk of losing customers to more developed rivals.”

Whatever the future holds, BHS is a warning that persisting with the ‘old way’ is no longer an option.

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Comments
  • Benjamin Reed 29 Apr 2016 at 2:39 pm

    It’s a shame that BHS were too late to adapt to the modern way of shopping. They forgot about the reason why stores were great 50 years ago, the experience. Not price. The physical store has the potential to be the most powerful and effective form of media available to a brand because it offers an experience, which if crafted properly, cannot be replicated anywhere else. Must try harder and who’s next?

  • Benjamin Reed 29 Apr 2016 at 2:42 pm

    Yes and M&S will be next – have you ever had an experience in an M&S store?!?!?

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