It seems that many British high streets are soon to become ghost towns. Retail commercial properties, even those belonging to large chains, are struggling to cope with the current economic climate – leading to the demise of well-known names such as Woolworths, GAME and even designer brands such as Aquascutum.
Now, it appears that JJB Sports may soon be added to the list of victims of the recession, following the plummeting of shares value earlier this week. Due to financial reasons, the chain decided to sell off all of its UK commercial properties, leading to warnings that shareholders may see their stakes wiped out completely in a rescue deal. As a result, stock for the sportswear brand dropped by 56 per cent.
The company has battled for survival throughout the recession, with a string of profit warnings forcing it to take out loans on several occasions in order to remain afloat. In fact, the most recent lifeline was proffered only four months ago by US retailer Dick’s Sporting Goods, which amounted to £20 million in order to help the commercial property chain repay some of its substantial debts. A further £10 million was put up by existing shareholders to try and dig the business out of the financial hole it has been stuck in for several years.
£20 million of the most recent float was put aside for use on 60 of its most profitable stores. The company intended to convert these premises into a new format – during trial runs of different store layouts, JJB Sports found one particular working model to generate far more consumer interest than all others tested. They believed that, by applying this format to already successful stores, the profit margins across the chain could be raised and hopefully save the brand from entering administration.
Unfortunately, several consecutive years of poor trading and loan repayments have taken their toll on the chain, which admitted that additional funds would be required sooner than expected in order to launch the store conversion programme. Due to the business’s existing £36 million in outstanding loans, the level of financial support that the company required was not offered – leaving bosses no choice but to sell out after discussions regarding the restructuring of the store portfolio and securing further funds failed to result in a positive outcome.
In a statement released by the board of JJB Sports, it said; “The board has decided to conduct a formal sale process of the company and now wishes to invite offers to support further investment in the company, which may result in a sale of the company or its assets.”
Yet even if the board were to find a buyer for the company, JJB Sports’ shareholders are unlikely to see a return on their investment. Currently, the brand owns and operates 180 commercial properties in the UK and employs over 4,000 people, so after factoring in any necessary redundancy payments and, obviously, the large sum of outstanding loans, shareholders will be lucky to see anything of the money they invested in the first place.
The company admitted that there “can be no assurance that any proposal or offer that may be made would attribute value to the ordinary shares of the company.”
So what of the future of JJB Sports? Retail analyst Matthew McEachran, of Singer Capital Markets, believes that other large sporting retailers in the UK, such as Sports Direct and JD Sports Fashion, could be the likely buyers of a large number of JJB Sports’ commercial properties. However, this does not necessarily mean that the brand itself will disappear.
He explains; “On the assumption that a sale is unlikely, the next step is likely to be administration which will inevitably see capacity withdrawn via closures, albeit not necessarily of the entire business.”
Good points 🙂