High rents see United Carpets in a pre-pack administration

TOUGH conditions on the high street forced carpet and bed retailer United Carpets to put its main trading arm into a controversial pre-pack administration, leaving landlords out of pocket.

The stock market-listed chain revealed yesterday it had put United Carpets (Northern) Ltd into administration to escape onerous leases.

The plc then immediately bought its 72 stores, two warehouses in Doncaster and Derbyshire and most of its assets back from administrators Begbies Traynor.

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Begbies declined to say how much it paid or to quantify the impact on creditors, which include landlords and carpet makers.

Bramley-based United has 420 staff, and chief executive Paul Eyre said the deal has “secured the majority of the jobs”. But it warned stores may have to close where it cannot negotiate better rent deals.

“The business is going to continue and customers are safe to shop with us,” said Mr Eyre. “By doing the transaction it’s to protect the good core going forward.

“We’re not going to alienate creditors. The suppliers in the main should not lose any money in this transaction.

“It’s positive for staff, customers and landlords we are going to make proposals to.”

United operates mainly through a franchise model, but many of these have struggled as consumers slash spending on ‘big ticket’ items.

Some 18 of its stores are owned, and 54 are franchised. Many are in ‘secondary’ locations, which have suffered from weak footfall.

Shares in United have been suspended since late August when it announced 14 store closures, rent negotiations and delayed the publishing of its accounts.

With an increasing number of its franchised and owned stores loss-making, the company had been trying to agree “substantial rent reductions” with landlords, but this proved fruitless.

“We got the answer back ‘No, we’re not prepared to do anything’,” said Mr Eyre.

“It left us with no alternative.

“We had to do something drastic to protect the core, the hard-working franchisees and employees.”

With a number of sites tied to 10 or 15-year leases at pre-downturn rents, he said the group faced paying rent, business rates and service charges on empty premises. He estimated this could be around £800,000 per site.

Mr Eyre said pumping funds from the plc into closed stores would have “only lasted so long – we would probably have run out of money in a year or so”.

Mr Eyre said it will again try to agree “appropriate” rents with landlords. “Maybe they can do a different type of deal that suits them,” he said.

Its suppliers such as carpet manufacturers have “retention of title”, which Mr Eyre said means “a supplier can take his stock back but won’t because we will pay for the stock”.

“The suppliers are all on side,” he said. “They think a better, stronger business is the key going forward.”

United said in a statement: “The board is disappointed at the need to take these steps but is confident that the core of locations remaining once the restructure is concluded will, with appropriately adjusted overheads, provide the foundation for a successful and sustainable business.”

Mr Eyre added United plans to remain a listed company and aims to publish results by the end of January.

Joint administrator Lila Thomas said: “The administration was a consequence of the challenging economic climate, but also the long-term lease commitments to the landlords of the stores.”

United Carpets joined the Alternative Investment Market in 2005 with a market value of about £20m.