99p Stores considers property restructure to address loss-making stores

A letter to property agents seen by Retail Week appeared to raise the prospect of a restructure of the retailer’s store estate.

The value retailer has instructed commercial property restructuring specialist Cedar Dean to “urgently review the company’s leasehold portfolio”.

Four stores, including some of the group’s multi-price fascia Family Bargains, launched in 2010, are understood to have lost the retailer £100,000 each. Despite this, 99p Stores said the fascia overall had generated double-digit like-for-like sales.

99p Stores managing director Faisal Lalani said that there was insufficient footfall at the affected stores, which are therefore no longer financially viable at current rents.

The letter to agents from Cedar Dean said: “Over the last year or so, the company has introduced a multi-priced format into the business and this has proven to be quite a challenge to develop and integrate successfully. This has had a knock-on affect across the business resulting in a trading loss with a significant number of leasehold businesses becoming unviable.

“The company has now been asked to urgently review its overall cost base and in particular its loss making stores within its leasehold business.

“If the company cannot agree revised terms or appropriate exits from these stores, it will be left with no choice but to explore a wider restructure of the company in order to safeguard its overall viability going forward.”

Lalani said: “We appointed Cedar Deans to reduce rents to make them profitable. The main purpose of the letter is to get rental levels reduced.

“In total the stores are losing £400,000 to £500,000 and it’s not a lot in the grand scheme of things. As a business we’re looking to get better rents and make stores viable. It’s a small proportion but I see no reason to have loss-making stores.”

He added: “If I look at current trading we will have opened 26 stores to date this year and we have another four stores opening before Christmas. I’m very very confident in the business and if I can remove some stores making losses in the business I’ll remove them.”

Cedar Dean said it was “working openly and transparently with landlords in order to try and overcome these issues in a pragmatic and proactive way”.

Value retailers are facing fierce trading conditions as businesses such as Poundland, B&M Bargains, Poundworld and 99p Stores vie for a slice of the market as shoppers seek bargains.

99p stores last month revealed a £6m drop in EBITDA to £4.9m in the year to January 31, which the retailer blamed on investment in buying teams, retail operations, IT, finance and HR and to support its 231-store estate.

Research from Trevor Wood Associates showed the Family Bargains fascia has been among the fastest growing out-of-town retailers in terms of stores numbers. It has grown from 140,000 sq ft to 300,000 sq ft in the last 18 months.

A spokesman for Cedar Dean said: “We are doing a review under the instruction of 99p Stores Ltd of a few loss-making stores. We are in contact with three landlords. We will be presenting the rest of our review in the new year.”

Separately, Retail Week can reveal former Beales and Peacocks boss Tony Brown has joined 99p Stores as chief operating officer. He had previously joined Peacocks as interim managing director in February.