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Business News

Focus DIY falls into administration as debt crisis mounts

The directors of beleaguered hardware chain Focus DIY were yesterday forced to call in the administrators after it defaulted on a loan repayment. The move puts almost 4,000 jobs under threat.

Just months after the company denied it was under pressure, the directors said Focus now had "no alternatives that could be explored any further". In a statement released yesterday afternoon the directors said they had "come to the conclusion that to protect the interests of creditors they have no choice but to seek protection through filing a notice of intention to appoint administrators".

This came after Focus defaulted "under the senior credit facility". The directors have approached Ernst & Young to oversee the administration process.

Robert Clark, a senior partner at Retail Week Knowledge Bank, said: "It is remarkable this didn't happen five years ago; the company has been defying gravity for a long time."

He added that the timing was slightly curious, because traditionally Easter and the May bank holidays is the busiest time of the year for DIY retailers. "Focus didn't have good enough stock, pricing or store locations," Mr Clark said. "They are a poor relation of the majors. Their sales numbers have been appalling."

The group traces its roots to 1987 when Bill Archer bought Choice DIY, a chain with six stores in the Midlands and the North. The shops were all rebranded to Focus DIY the following year and management developed a franchise with close to 300 stores.

Focus bought Wickes in 2000 in a deal worth £296m, with the merged company becoming the second-largest player in the UK's DIY market. It sold Wickes five years later to Travis Perkins. It was around that time that the company ran into financial difficulties and was close to breaching its banking covenants. While there were long-running rumours of a takeover approach, Focus – struggling under debts of £280m – was put up for sale by its private equity owners Apax Partners and Duke Street. They eventually sold out to rival Cerberus for £1.

Cerberus set about overhauling the group, slashing costs and selling off poorly performing stores, leaving it with 178. Yet in 2008, Focus was forced to enter into a Company Voluntary Arrangement with its creditors.

Mr Clark said the long-term survival of the chain had looked "increasingly uncertain" from November last year, after Cerberus appointed investment bank Lazard to advise on options.

Sting in the retail

The number of retailers tumbling into administration soared by almost a third in the first three months of the year as the sector struggles to deal with a drop in consumer spending. The accountants Deloitte yesterday revealed that 60 companies had fallen into administration during the first quarter, up from 46 a year earlier.

Lee Manning, a partner at Deloitte, said: "It comes as no surprise that the retail sector has been worst affected. The sector is heavily reliant on buoyant consumer spending and the increase in VAT and the Government's austerity measures are undoubtedly hitting the sector hard."

He added that HMRC was taking an increasingly hardline approach to companies experiencing financial difficulties. "While the retail sector fared the worst this quarter, this trend is very much in line with the overall direction of the market." Overall, a total of 557 companies fell into administration in the first quarter.