MPs are calling on the Secretary of State for Trade to investigate Modella Capital, as concerns grow over the business practices of the private equity investor.
Amid continuing concerns for the future of British high streets, the call from MPs comes in a week that saw the owner of TG Jones, the brand name for what were the WHSmiths High Street chain, secure High Court approval for a massive restructuring that will see the closure of 150 shops – and impose steep rent cuts across most of the stores that remain.
As we’ve previously reported, when Modella Capital acquired the chain, which currently operates 451 shops and employs 4700 people last year, it had to change the name of stores purchased from WHSmith, which retained the rights to the historic brand for its travel outlets at places such as railway stations and airports.
Blaming both “challenging retail conditions” and a lack of investment in the chain by WHSmith, which had already been closing shops, despite grand plans for store revamps and improvements made to suppliers and publishers when they bought the stores last year, Modella has pushed through a radical rescue plan.
Business Matters and other news outlets report that longside the closures, roughly 120 landlords will receive no rent for up to three years, while rents on hundreds of other shops will be cut by between 15 per cent and 75 per cent.
Modella, whose current investments also include Hobbycraft, that retailer recently exiting a Company Voluntary Arrangement, a business insolvency process, two years earlier than expected, says the plan is essential to the survival of the business – and that some of the savings will be reinvested in stores as part of a wider turnaround.
In the case of Hobbycraft, Modella’s “tough love”, which led to some store closures, seems to have worked. Retail Week (subscription required) reports creditors have been paid. Back in February, Modella was considering selling the business.
But in the case of TG Jones, the High Court was told the retailer was on the brink of insolvency, facing a cash shortfall of nearly £8 million by the end of this week, unless the deal was waved through.
Business Matters reports Tom Smith KC, for TG Jones, told the hearing the business was “highly distressed” and “running on fumes at the moment”. He said it would have run out of cash in April but for a £10m loan from Modella and the deferral of liabilities, including a large tax bill owed to HMRC.
Trading pressures, and years of underinvestment by the chain’s previous owners, making WHSmith High Street stores among the most vilified chain on the high street by many customers, and a long-term sales decline have also been cited as to blame for TG Jones woes, that last year saw it facing a bailiff threat over unpaid tax and business rates.
The proposals discussed in the High Court drew considerable opposition, led by property group British Land, which branded them “fundamentally unfair”. Property and business experts had also previously cited the brand change as one reason for the business’ woeful situation, including Peter Bill, author of Broken Homes & Planet Property.
Modella sweetened the terms with a series of concessions, persuading British Land to drop its challenge, but many suppliers, presumably including publishers, are also absorbing a significant financial hit.
It’s now expected TG Jones will end up with around 302 shops, the stores under threat of closure not yet announced, depending on how many landlords choose to terminate their leases rather than accept reduced rents.
The judge, Mr Justice Hildyard, had to weigh whether the restructuring was fair, and in particular whether creditors would be no worse off under the plan than in an administration, the central test for a restructuring plan of this kind under the Companies Act. He gave the plan the green light, describing it in a summary of his judgment as “complex in their terms and far-reaching in their effect”.
He said he had been most troubled by the potential impact on landlords, but was ultimately persuaded that the deal was “objectively, the lesser of two evils” flowing from the company’s “trading failures and financial predicaments”.
Alex Willson, chief executive of TG Jones, welcomed the ruling.
“The approval of our restructuring plan today at TGJones means we can now move ahead with our turnaround,” he said. “I know what a challenging period this has been for everyone connected with the business, particularly our colleagues, who have shown incredible resilience throughout. Thank you to each of you for your hard work, care and commitment.
“It’s this team, and the potential I’ve seen since joining, that gives me confidence we can build a stronger, more sustainable business for the long term. We will now be fully focused on investing in our stores, offering customers better value and service and supporting colleagues through the change ahead.
“There is a lot of work to do and some of the decisions we need to make won’t be easy. But today’s outcome means we can now focus on delivering the plan. Thank you to our partners, suppliers and other stakeholders who have supported us through this process. Now it’s time to roll up our sleeves and really move forward!”
The ruling lands against a punishing backdrop for physical retail. The Centre for Retail Research tracks the scale of store closures and job losses across the UK high street, and has warned that closures are running at their highest level in years as rising costs, higher business rates and weak footfall continue to erode the case for large store estates.
Responding to concerns raised by constituents, MPs are noting the urgent need to be doing more to support retailers, including from hostile private equity firms.
• TG Jones is online at tgjonesonline.co.uk
• Modella Capital is online at modellacapital.com
• Centre for Retail Research: The Crisis in Retailing: Closures and Job Losses
Head downthetubes for…
The high street successor to WH Smith offers revised terms to landlords to get restructuring plan approved. Up to 450 shops and 5,000 jobs hang in the balance
• Business Matters: TG Jones wins court backing to close up to 150 high street shops
• BBC News: Up to 150 ex-WHSmith High Street stores to close as rescue deal approved
“‘To sugar the pill, TG Jones and Modella have said they will share 50 per cent of any earnings above £40 million over the next three years with landlords.’ What earnings? The brand change has screwed that prospect.” – Peter Bill, author of Broken Homes & Planet Property.
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John is the founder of downthetubes, launched in 1998. He is a comics and magazine editor, writer, and Press Officer for the Lakes International Comic Art Festival. He also runs Crucible Comic Press.
Working in British comics publishing since the 1980s, his credits include editor of titles such as Doctor Who Magazine and Overkill for Marvel UK, Babylon 5 Magazine, Star Trek Magazine, and its successor, Star Trek Explorer, and more. He also edited the comics anthology STRIP Magazine and edited several audio comics for ROK Comics; and has edited several comic collections and graphic novels, including volumes of “Charley’s War” and “Dan Dare”, and Hancock: The Lad Himself, by Stephen Walsh and Keith Page.
He’s the writer of comics such as Pilgrim: Secrets and Lies for B7 Comics; “Crucible”, a creator-owned project with 2000AD artist Smuzz; and “Death Duty” and “Skow Dogs”, with Dave Hailwood.
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