High street blues

TJ Hughes, a Liverpool-based discount department store founded in 1912, was already in a pretty bad shape when Endless bought it off Silverfleet Capital in March. "TJ Hughes was already on the brink of administration back then. We came in, bought the equity for a nominal sum and then provided the business with some working capital," explains Gary Wilson.

Although aware of the difficult task ahead, the turnaround firm set out to improve TJ's operations and financials straight away: "We spent the first months on crisis stabilisation, and then embarked on a series of cost-cutting measures - we had already successfully taken several millions of cost off the business," continues Wilson. "The next step was to improve the product in the shop. But we just could not regain the confidence of the supplier and get credit for putting products in the shop. That pushed cash need for the peak period - in September - way off, and we just couldn't take the risk."

The company's substantial woes, coupled with a particularly grim outlook for the high street retail sector, made Endless' initial plan to return the firm to profitability hard to implement. Says Wilson: "TJ Hughes lost in excess of £10m for the year ending in January 2011, and it was probably going to lose a similar amount this year. Our aim was to return it to profitability by 2012 - it turned out that the business was in such a bad shape that the cost of fixing it would be huge."

Wilson is however hopeful that the damage to TJ Hughes and its staff can be curbed: "There is a healthy level of interest in the business, so it's a case of trying to rescue as many stores and jobs as possible." The company employs around 4,000 people and has 57 department stores nationwide.

TJ Hughes is not the only retailer facing difficulties this week. Struggling fashion brand Jane Norman, which held rescue talks with Better Capital and Sun Capital Partners, has now gone into administration - the company has a debt burden of nearly £140m on sales of around £145m. Thankfully, administrators Zolfo Cooper managed to sell 33 stores to Edinburgh Woollen Mill on Tuesday,  saving 400 jobs for the time being. A similar number of shops will however have to close permanently, resulting in the loss of 390 jobs.

More bad news came from chocolate retailer Thorntons and furniture chain Habitat, which both intend to close hundreds of shops over the coming years. "The high street is just really tough," confirms Wilson. "Like-for-like sales at TJ were down 19% this year."

TJ Hughes is the second spot of bad news for Endless this year, after conservatory maker Amdega - acquired by Endless in August 2010 - went into administration at the end of April. In a similar fashion, legacy issues and difficult trading conditions made the turnaround impossible despite the significant time, capital and energy invested by Endless.

On the other hand, the firm just reaped a double-digit multiple on the trade sale of paint producer Crown Paints, which should even out potential losses on other investments. Under Endless ownership, Crown Paints saw its export business grow by about 40%. Profit margins also went up from 35% to around 45%. Loss-making at the time of the buyout investment, Crown Paints now has an EBITDA of £20m on sales of £180m.

So despite recent setbacks, Wilson is confident in the future of the turnaround model: "This is what we do, and it works nine times out of ten. But sometimes you just cannot turn these things around."

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• Topics
• UK / Ireland
• Turnaround/Special Situations
• Endless
• Sun Capital
• Better Capital LLP