Retrenchment and capacity cutting at Blacks Leisure - and then expansion again?

This could be a useful story for AQA unit 4. Blacks Leisure, who own the 208 Millets and 13 Freespirit stores as well as the 92 Blacks stores selling outdoor clothing and equipment, announced their results for the 6 months to 7 January yesterday. Although half-year sales fell 3% to £98.9m, the company had closed 87 loss-making stores in November and the sales figures excluding those stores - the like-for-like sales at the remaining stores – were up 12%, showing that a policy of cutting capacity can turn around business results very effectively.

The closures also involved retrenchment away from earlier diversification out of its core market of specialist outdoor equipment for walking, hiking and camping. Blacks sold its O’Neill shops, which specialised in surfwear. “What had gone wrong with the business was that it had branched out into a sector called boardwear, which is surf clothing, and a lot of what we closed was connected to that,” said chief executive Neil Gillis. They also benefitted from the very cold weather of the last few weeks, as they report that sales over the 6-week Christmas period were up by 15.2% compared with the previous year.

There is an interesting follow-up to the story in today’s Financial Times though. It seems that, having negotiated a generous deal with creditors and landlords in order to close stores two months ago, they are now looking at re-opening in many of the same towns. Landlords saved Blacks from potential administration in November by accepting a company voluntary agreement (CVA) allowing the company out of leases on 87 stores in return for six months’ rent and the payment of rates. The FT reports that “Yesterday the retailer said it was considering an equity fundraising of between £15m and £20m, some which would be used to “selectively expand” into previously vacated markets. Nigel Gillis, Chief Executive of Blacks, says that one of the previous problems had been making the mistake of taking stores in expensive locations like out-of-town retail parks, which have now been closed, and that the intention now is to look at locations with lower rents in the same towns or cities. This has not gone down well with the British Property Federation, which represents UK landlords.
“Companies seeking to raise capital will inevitably be upbeat about their plans and prospects, but it is unfortunate that the perception will be that Blacks’ use of a CVA comes across as a ploy to release it from some of its leasing liabilities,” said Ian Fletcher, BPF director of policy.