Decathlon? Don’t even think I’ve seen a one.
All sorted!
The jobs of most of the 2,400 Go Outdoors employees look safer after the company’s owners put the business into administration and promptly bought it back under a pre-pack arrangement.
JD Sports Fashion concluded the deal on Tuesday, in what effectively is a restructuring of Go Outdoors to make it viable.
I'm not a businessman in anyway but i just dont get how this all works. JD sports owned them 0 but they havent gone broke, but Go has and now they have bought them back? Is this just a business way of screwing your suppliers?
What a surprise.
Who's getting stiffed?
Landlords - yep; suppliers - probably; employees - probably; sundry creditors - probably.
As for pre-packs generally - I'm against them as they allow, encourage, owners to walk away from self-created problems and start all over again with no responsibility or liability for what they've created and dumped.
Whats a pre pack?
benjamins - see link from one of the UK's leading administrators/liquidators.
https://www.begbies-traynorgroup.com/pre-pack-administration
A pre pack is where a company goes into liquidation with the specific intent of immediately being sold again, often to the same person. It's pretty bad practice in many ways. Here's they're probably using cv19 as justification to say that JDs bid was above market value in the circumstances and walking away from a pile of debt. The amount of cash they'd lost this year though was staggering IIRC so maybe it was better than nothing.
Who’s getting stiffed?
Landlords – yep
Their statement suggested they were locked into crap leases that favoured the landlords and left them unable to renegotiate. Possibly just redressing the balance? Or hammering innocent landlords?
Their statement suggested they were locked into crap leases that favoured the landlords
Damn capitalist society where you have to pay landlords.
Or making it easier to close any unprofitable shops. Could be a lot of empty retail parks in a year or two.
Perhaps they should have done better due diligence on the leases when they bought it in 2016!
Damn capitalist society where you have to pay landlords.
But is it fair to have a contract where rent can only go up?
But is it fair to have a contract where rent can only go up?
Suppose it depends on the contract, if it has a built in escalation that must have appeared fair at that point, higher than a worst case, lower than a best case for the economy over the next 5/10/15/20/25 years or whatever the lease was.
The alternative would be having to renegotiate it every year and the landlord demanding much higher rates in the good years.
The trouble with that for Landlords is their investors/lenders expect an ROI, so if they cut the rent by a half, they also have to write off half the value of the property, and finding half the value of the property to pay back is a lot harder than just leaving it sat empty and only losing that ROI each year.
Tinas - commercial rents are a one-way ratchet which, unless tenants play hardball, means they always increase annually.
Commercial property and rents are core parts of most/all pension schemes so the knock-on effects are not trivial.
Commercial rents always remind me of the scene in Goodfellas when they explain what happens when the mob buy into your business, except the mob are not as ruthless.
commercial rents are a one-way ratchet which, unless tenants play hardball, means they always increase annually.
But then so does inflation, and therefore turnover unless your business falls behind.
I think you just stole my fun sponge.
Combining Rule#1 with the pirate code
except the mob are not as ruthless.
They also do something for the money.
tinas - yes, inflation rises but that's not the point.
Some economists believe we're heading towards a deflationary spiral; what then?
Commercial rents are, generally, due on quarter days and next one is rapidly approaching. There is much uncertainty about how much of amounts due will actually be paid/collected.
Last quarter day, late March, receipts were 50 - 75% of amount due.
Next one will be even worse.
Not helped by some of the fast food peddlers refusing to pay.
Look at Trafford Centre, owned by Intu as an example; they have been struggling for some time.
Key tenants are John Lewis, Selfridges and Debenhams; JL are reviewing ops with an ever growing online presence and Trafford store has not re-opened yet; Debenhams are a basket case; Selfridges is an increasingly strong brand.
As for the rest - the predictable assembly of jewellers (of varying quality), 'fashion' stores, shoe shops, coffee'n'snacks with a few others...and the 'food court'.
I could go on about each of these categories but won't.
None of it is 'essential'.
How will any of these businesses trade at Christmas when they expect to move from loss to profit - unless threat level is, cynically, reduced to 1. Distancing, queueing, restrictions on trying on clothes/shoes, failing economy, rapidly rising unemployment will be a...challenge.
Hard rain's gonna come people.
but that’s not the point.
Yes, but my point was that intu, prudential, or whoever owns the land/building/center are also a company that need to make money like any other. If they spend however many million building a shopping center then they need to charge rent for the units.
Unlike the Mob they didn't kidnap Miss Selfridges kids or threaten to break John Lewis fingers until they signed up.
Not sure why people are defending these pre-packaged deals, as you pointed out, every time Mike Ashley or another company does this, its a few million out of your pension pots and into his.
tinas - I think we're close to agreeing.
We have allowed the 'masters of the universe' to build these complicated structures and then walk away with no real consequences - to them - when it suits.
The costs and consequeces are always borne by the ordinary punter; that stinks like a rancid pile of shit.
I wonder how long the PPF can continue in its present form without increasing the levy on existing funds.
Frank is right and so is TINAS, landlords need to charge rent however the nature of the way many companies are bought and sold means the banks pick up most of the cost, the 'investors' don't invest a lot but take assets and charge eye watering management fees on the company they have bought and lumber them with the debt repayments. It's a very short term profit making model for the investor, leaves the companies permanently on a knife edge of profitability and the only people who come out of ok aremthe 'investors'. When these companies invariably go bump the employees and creditors are the ones to get shafted.
That said retail landlords are screwed, all leveraged up to the eye balls in a shrinking market. Intu are expanding the Trafford centre despite losing some large clients such as M & S home, BHS etc. And having empty units in the main part. If Debenhams pulls out they will be in real trouble.
I think the landlord of the shop I work in has the right approach to rents. I am not privy to the exact details but basically as our sales increase so does the rent, and as our sales fall so does the rent. This helps supports a retailer in hard times and stops the landlord getting no rent from an otherwise potentially empty unit and when things pick up again so does his rent and he benefits more in the good times. A much better approach than upwards only rent reviews and helps prevent company’s closing stores and blaming rent costs.
A pre-pack sale to the original owners seems fundamentally unethical; it's effectively legalised theft from the creditors. If I were a supplier to any business owned by JD Sports I'd be very cautious about allowing them any credit.
I think the landlord of the shop I work in has the right approach to rents. I am not privy to the exact details but basically as our sales increase so does the rent, and as our sales fall so does the rent.
Very rare, but will probable become less so. The old model of rents go up 10% per year for ever only ever looked vaguely plausible in the boom years....
A pre-pack sale to the original owners seems fundamentally unethical; it’s effectively legalised theft from the creditors.
yes and no, if the alternative was just to liquidate the chain, which is probably was given it was loss making; then this way, everyone is better off (inc landlords).
I agree. This seems like legalised theft to allow those who buy companies at the wrong price or get their due diligence wrong to walk away and leave anyone but them to pick up the mess and take the losses for them.
I think the landlord of the shop I work in has the right approach to rents. I am not privy to the exact details but basically as our sales increase so does the rent, and as our sales fall so does the rent. This helps supports a retailer in hard times and stops the landlord getting no rent from an otherwise potentially empty unit and when things pick up again so does his rent and he benefits more in the good times. A much better approach than upwards only rent reviews and helps prevent company’s closing stores and blaming rent costs.
Its a good idea as empty shops still attract business rates hence why shops sell quite cheaply often. However it would be better linked to something like GDP / consumer confidence as having it tied to the success or otherwise of the actual store then punishes the lessor for doing well, and rewards them for doing a bad job.
Yes, but my point was that intu, prudential, or whoever owns the land/building/center are also a company that need to make money like any other. If they spend however many million building a shopping center then they need to charge rent for the units.
Yes in the case of glossy shopping centres, but in the case of Go Outdoors they always seem to be in crappy old units. The one in Cardiff was there when I came to Cardiff in the mid 90s as an MFI! And it was scruffy and old then.
EDIT actually I think it was Do It All - MFI was the one next door maybe.
yes and no, if the alternative was just to liquidate the chain, which is probably was given it was loss making; then this way, everyone is better off (inc landlords).
If it wasn't possible to evade creditors via pre-pack and buy back, companies would not go so far into debt before they did something. I've always understood it was illegal for a company to trade while insolvent, although the pandemic is a special situation where they would have less control.
Yes in the case of glossy shopping centres, but in the case of Go Outdoors they always seem to be in crappy old units. The one in Cardiff was there when I came to Cardiff in the mid 90s as an MFI! And it was scruffy and old then.
EDIT actually I think it was Do It All – MFI was the one next door maybe.
Someone still built/bought the building as an investment with the intention of renting it out though, and someone agreed to the rent and whatever terms were in the contract. Presumably crappy buildings on their own have lower rents than nice ones surrounded by other shops.
Same here- our local GO was a Tesco. All that's changed is the removal of the aisles and GO vinyl wrap on the massive windows as I guess it's cheaper than bricking them up!
Slightly annoying that landlords get lambasted for upwards only rent clauses.
They are not mandatory, they are optional. Retailers don't have to agree to them.
Working for my first employer who were, and still are, one of the most successful retailers in the UK, I just assumed that leases with 5 year break clauses were normal. And in that five years there would not normally be a rent review.
Moved to my second employer, a less successful retailer, and found the property director whinging about 25 year terms and upward only deals, whilst still happily signing off on new units on that same basis.
And this was 20 years ago.
So, you can negotiate good terms, be they turnover rent, cash contributions or break clauses.
It's not (always) the landlord's fault.
All that said, I think pre-packs are pretty grim. At least give other bidders the opportunity to offer creditors a price. That would stop the worst abuses. JD wouldn't be so keen to stiff their creditors if they thought they might lose the whole business.
