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JD Sports-Owned UK Outdoor Chain Files for Bankruptcy

The British bankruptcy drama that has already toppled major retailers such as Victoria’s Secret U.K., Debenham’s, Laura Ashley and DVF Studio continues as yet another business goes into administration, while a major shopping center operator warns bankruptcy is on the way if funding talks with lenders fall through.

Athletic apparel and footwear powerhouse JD Sports has bought back the assets of its adventured-oriented Go Outdoors for £56.5 million ($70.7 million), putting the outdoor retailer into administration—the U.K.’s equivalent of a bankruptcy filing.

And Intu Properties, a real estate investment trust operating 17 shopping centers in the U.K. and three in Spain, confirmed it had appointed KPMG to contingency plan for its administration one week after reports first surfaced. The company has until June 26 to come to a financial agreement with its lenders or else it will fall into administration. If Intu succumbs to bankruptcy, it still needs £12 million ($15.1 million) in funding to pay KPMG, or else it will be forced to close an unnamed number of shopping centers.

The company had about 60 percent of shopping center staff and approximately 20 percent of head office employees on furlough.

While Intu hasn’t gone into administration yet, Go Outdoors officially did once JD Sports reacquired the business from Deloitte as a part of a process known as “pre-pack” administration.

Pre-pack administration is an insolvency procedure in which a company arranges to sell all or some of its assets to a pre-determined buyer prior to appointing an administrator, or bankruptcy advisor, to facilitate the full sale. This allows the company to shed most liabilities when it formally files for administration.

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As part of the administration process, JD Sports will begin a restructuring of the Go Outdoors unit. The onset of the COVID-19 pandemic made the future viability of Go Outdoors “materially uncertain” as it was forced to shutters its 67 stores on March 23. JD Sports’ board of directors decided that it was not in the best interests of the company and its shareholders to provide continued financial support to Go Outdoors in its existing form.

JD Sports put its outdoor retail chain Go Outdoors into administration while U.K. mall operator Intu Properties could face a similar fate.
JD Sports is restructuring the failing Go Outdoors adventure-oriented chain. Keith Mayhew/SOPA Images/Shutterstock

The terms of the present property leases Go Outdoors had been locked in were “extremely inflexible,” according to a company statement. The leases have an average remaining expiration period of approximately 10 years with rent prices that can either go up or stay the same, but never go down, which is designed to protect the landlord from unforeseen market circumstances. Many of the leases are fixed at rates above inflation regardless of the market rent in the stores’ locations.

With Go Outdoors put into administration, Peter Cowgill, executive chairman of JD Sports Fashion, said he looks forward to having positive conversations with landlords and agreeing to “new flexible lease contracts which reflect the widely reported challenges of reduced consumer footfall.”

JD Sports has taken an initial 12-month license to continue operating the Go stores. Subject to flexibility in future leases, the group intends to retain most of the retailer’s retail estate and preserve as many jobs as possible.

The sports fashion retailer had been exploring alternatives for Go Outdoors, including a sale while the coronavirus lockdown mounted further pressure. The move comes one month after the U.K.’s Competition and Markets Authority (CMA) blocked JD Sports’ anticipated £86 million ($111.42 million) merger with Footasylum over anticompetitive concerns.

Go Outdoors, which JD first bought for £112 million ($140.19 million) in 2016, has struggled with significant losses as sales declined at its stores.

“As a consequence of COVID‐19, Go Outdoors was no longer viable as previously structured and would have absorbed capital at an unsustainable rate for the foreseeable future,” said Cowgill. “Having investigated all available options for the business, we firmly believe that this restructuring will provide Go Outdoors with a platform from which it can progress whilst remaining a member of the Group. Most importantly, we are pleased that it will protect the maximum number of jobs possible.”

U.K.-based apparel retailers have shared similar struggles with their U.S. counterparts, particularly in paying off landlords in time during the period of which their stores were closed. Retailers including AllSaints, New Look, T.M. Lewin, Monsoon, Accessorize and Quiz are among the fashion sellers that were embroiled in squabbles with their landlords, demanding deep rent cuts as they enter—or teeter on the brink of—administration.

UK mall operator Intu warned investors that a bankruptcy could be on the horizon.
The INTU Shopping Centre in Watford, north of London, closed its doors for months amid the coronavirus pandemic. The mall operator warned investors that a bankruptcy could be on the horizon. LNP/Shutterstock

One landlord that contended with money trouble related to a lack of payment from tenants, of course, is Intu. The company, which carries a £4.6 billion ($5.9 billion) debt load, said it received just 29 percent of tenant payments due in the second quarter. But the company also suffered losses of more than £2 billion ($2.51 billion) in 2019, which prevented it from getting access to the U.K. government’s COVID Corporate Finance Facility (CCFF), a program that offers a lifeline to large firms that can prove they were in sound financial health prior to the pandemic.

Amid the potential administration filing, Intu is seeking to negotiate breathing space with its own lenders that would involve them waiving certain breaches of loan terms as it attempts to sell assets or raise capital to pay down debt. The landlord has asked banks to waive terms on £600 million ($750 million) of loans until the end of next year. Lenders are unlikely to agree to a grace period of more than 15 months.

In April, in an effort to protect businesses during the crisis, the U.K. government put a temporary ban on landlords evicting tenants that don’t pay rent, raising the prospect that mall owners will collect a fraction of the money due. As part of the moratorium, the government is only allowing landlords to collect rent if they are owed 90 days of unpaid rent.