Thousands of jobs are at risk as former WH Smith stores face closure under a radical restructuring plan unveiled by their new owner, Modella Capital. The investment firm, which bought the 480-strong high street chain for £76m last year and rebranded it as TG Jones, has warned that up to 100 of the remaining 450 shops could shut unless landlords agree to drastic rent concessions.
Eight stores will close with immediate effect, and Modella is demanding full rent holidays on approximately 100 more. The company is also seeking 5% rent reductions on hundreds of additional outlets for a twelve-month period, with cuts of between 15% and 75% beyond that. Should landlords refuse, the stores could be closed. The chain employs around 5,000 people, meaning the proposed closures would put thousands of those roles directly in jeopardy.
Landlord negotiations and the threat of a cram-down
Modella’s demands to landlords are at the heart of the restructuring. On Wednesday, the company set out a plan asking for 100% rent holidays on about 100 stores and 5% rent reductions on hundreds more, according to a document seen by the Guardian. If landlords reject these terms, the affected stores will face closure. The firm is reportedly considering using a legal mechanism known as a “cram-down” to force the proposals through. This process requires approval from only one class of creditor and the High Court, even if other creditors object, giving Modella significant leverage.
Secure Trust Bank, which provided a £50m loan to fund last year’s acquisition, is expected to play a central role in negotiations. Investment group Aurelius is understood to be a favourite to replace Secure Trust Bank as the chain’s lender. The outcome of these talks will be critical: if landlords refuse to accept rent holidays and reductions, the restructuring plan could collapse, forcing further store closures and job losses.
The challenge for Modella is heightened by the recent track record of other companies within its stable. Claire’s and The Original Factory Shop, both owned by the same investment firm, have already collapsed, leading to the loss of about 2,500 jobs. Modella’s Hobbycraft chain also closed numerous stores under a restructure last year. Industry insiders have noted that landlords may be reluctant to support TG Jones given the failure of these other Modella-owned retailers.
Company’s long-term turnaround plan
Modella has blamed “weak consumer spending”, rising operating costs and geopolitical events for TG Jones remaining lossmaking. The company also admitted that the forced name change from WH Smith to TG Jones had negatively affected consumer awareness and trade. A TG Jones spokesperson said: “This decision has not been taken lightly. While we continue to believe in the strength of the core business, TG Jones has experienced highly challenging trading conditions over the past year, along with many other brick-and-mortar retailers.”
The spokesperson pointed to “weak consumer spending and cost of living pressures, combined with rising operating costs as a direct result of government policy and recent geopolitical events” as factors that have kept the company in the red. Specific cost pressures include increases to the National Living Wage, higher National Insurance contributions, and a new packaging tax. Geopolitical tensions in the Middle East have also driven up energy and logistics costs.
Despite the difficulties, Modella has committed to investing £35m into the business as part of the restructuring. The plan, which must be approved by a vote of creditors and ratified by the court, is described as “an essential part of the company’s turnaround”. The spokesperson said the restructure was “designed to protect the substantial core of the store estate and create a stronger, more sustainable business that can continue to serve customers for years to come”.
However, industry insiders have cast doubt on the company’s long-term intentions, suggesting that Modella always planned to close dozens of stores once a 12-month moratorium on closures – agreed as part of the original acquisition from WH Smith – expired in June. “This has been the intention all along,” one source said. “Nobody wants almost 500 sites [in the UK].” The source added that turning the business around in the current retail climate would be tough, putting the chances of creating a viable proposition at perhaps “one-in-three”.
The original WH Smith chain was founded in 1792 by Henry Walton Smith and his wife Anna. It expanded rapidly with the growth of the railways in the 19th century, opening its first travel store at Euston station in 1848. Those travel stores were not included in last year’s sale and remain owned by the stock market-listed parent company, trading unaffected by the restructuring. The high street business, now rebranded as TG Jones, faces an uncertain future as Modella seeks to slim down to a chain of around 350 shops – a target that hinges on whether landlords accept the proposed rent holidays and reductions.
