The high street rebrand that nobody asked for is heading towards the rocks. TG Jones, the chain hatched from the bones of WH Smith’s 450-strong shop estate, is staring down the barrel of bailiff action after racking up millions of pounds in unpaid bills, with its private equity owner conceding that the business may run out of cash before the summer is out.
In a 214-page restructuring dossier circulated to creditors last week, Modella Capital, the buyout house that snapped up the high street arm of WH Smith earlier this year, disclosed that the retailer is sitting on £3.4m of unpaid business rates, a further £4m owed to suppliers and an £8.4m tax bill that HMRC has so far agreed to defer. Add it together and the chain is in the red by the best part of £16m before the lights have so much as flickered.
“In recent weeks, the business has started to receive a significant number of demand letters and summonses as a result of the non-payment of business rates arrears,” Modella admitted in the document. “Without funding to pay these outstanding business rates or the compromise of these amounts, the business is at risk of local authorities seeking to take enforcement action.”
In plain English, that means bailiffs at the door, either to seize stock from the shop floor or to lodge a winding-up petition against the company itself.
A name nobody recognises
The whole affair has the unmistakable whiff of a deal gone sour. When Modella bought the high street estate from WH Smith, which has decamped to focus on its lucrative travel division at airports and railway stations, it was forbidden from continuing to use the WH Smith fascia. The result was TG Jones, an invented name plastered above hundreds of shopfronts where one of Britain’s most familiar brands once sat.
Trading, predictably, has collapsed. One landlord, who asked not to be named, did not mince her words. “They’ve bought the business and rebranded it with a name that’s lost all the goodwill that went with it,” she said, describing the surviving estate as “a really below-par store portfolio that sells God knows what”. Footfall, she added bluntly, “fell off a cliff”.
She is not alone in her fury. Modella is now asking the landlords of more than 120 shops to accept three-year rent holidays, three years of receiving precisely nothing, while hundreds more are being told to swallow rent reductions of between 15 and 75 per cent. If they refuse, the company has warned, it will run out of cash by the end of June.
Westminster turns the heat up
The proposals have caused consternation in Westminster. Justin Madders, the former employment minister and a member of the Commons business and trade select committee, accused Modella of operating a “heads I win, tails the taxpayer loses” model.
“If workers lose jobs, councils lose revenue and the public is left carrying the cost,” he told The Telegraph. He reserved particular scorn for the licensing arrangements buried inside the restructuring plan, under which TG Jones is required to pay millions of pounds in fees to other parts of the Modella ownership structure for the right to use the very name it was forced to adopt.
“What sticks in the craw,” Mr Madders said, “is that while councils are left chasing unpaid business rates and HMRC is giving breathing space over millions in deferred tax liabilities, the company’s own restructuring documents show millions accruing in licensing fees payable within the wider ownership structure for use of the newly created TG Jones brand name.”
It is the sort of arrangement, common enough in private equity playbooks, that tends to look rather less defensible when councils across the country are being told to wait their turn.
‘Sucking the soul out of the high street’
For all the talk of brutal trading conditions on the British high street, retail analysts are unconvinced that TG Jones can shelter behind macroeconomic excuses. Stephen Springham, head of UK retail research at property consultancy Knight Frank, pointed out that books and stationery — the very heart of the WH Smith proposition — was “the best performing retail subcategory last year, bar none”.
“They can’t blame market conditions. It’s absolutely scandalous,” Mr Springham said, before delivering the most damning verdict the sector has heard in years. The takeover, he argued, was “probably the worst example we’ve ever seen of private equity sucking the soul out of the high street — the only one I would say was worse was BHS”.
The comparison with Sir Philip Green’s collapsed department store is not one any private equity sponsor wishes to invite.
150 closures and counting
Internally, the message from management is no less stark. Alex Willson, the chief executive parachuted in to run TG Jones, told staff last week to brace for the closure of as many as 150 shops as landlords activate break clauses requiring just 43 days’ notice. Redundancies will follow.
“We absolutely cannot carry on as we are or there will not be a viable business in the future,” Mr Willson warned employees.
Creditors will vote on the restructuring plan in late June, with a High Court hearing scheduled for 29 June to determine whether the proposals can be sanctioned. Teneo, the private equity-owned restructuring consultancy, is leading the process.
Several landlords are already plotting a rebellion. “The more proactive landlords, like us, will do everything they can to take them back and re-let them to someone else,” one told The Telegraph. “We’ll do better with other retailers.”
For SME suppliers and small landlords with single-shop exposures, the calculus is rather more brutal. They are owed real money by a business that has openly told them it cannot pay, sitting beneath an ownership structure that continues to extract licensing fees for a brand worth a fraction of what it replaced.
Modella declined to comment.
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TG Jones faces bailiff threat as WH Smith successor buckles under unpaid tax bills