Dutch Retail Icon Grapples With Future as Lenders in Control

Seeking to explain the appeal of Dutch retailer Hema’s brand to consumers outside the Netherlands, CEO Tjeerd Jegen compares it to a mix of Marks and Spencer Group Plc and John Lewis, “on steroids”.

But just as the British stores have faced their own financial difficulties of late, so Hema has had its own problems, starting with an oversized debt pile. And this week’s restructuring plan -- which will cut its liabilities from 750 million euros ($842 million) to 300 million -- still raises questions over its future ownership.

Dutch Retail Icon Grapples With Future as Lenders in Control

The 93-year-old company charts its history back to a single store on the cobbled streets of Amsterdam’s city center. Hema remains beloved today by Dutch consumers for its colorful birthday cakes, smoked sausages and own-design homeware. But in recent years a massive debt pile, high rental costs and a decline in footfall have eaten away at its bottom line.

Now the company’s bondholders -- including U.S. hedge funds Bardin Hill Investment Partners and CarVal Investors -- have struck a deal with management and other lenders to gain control of the company in exchange for cutting the debt. The flamboyant Dutch billionaire Marcel Boekhoorn, Hema’s owner since 2018, has seen his stake completely wiped out.

It’s still not clear whether the bondholders want to own a retailer for the long-haul. Furthermore, like many stores, Hema is still digging itself out of the misery of coronavirus-induced lockdowns. It expects adjusted earnings to slump 57% this year alone.

Dutch Retail Icon Grapples With Future as Lenders in Control

“Somehow it has been a struggle for Hema for years,” said Jos Versteeg, an analyst at Amsterdam-based InsingerGilissen NV. “They might have too little scale with their own brand.”

In an interview with Bloomberg, Hema’s CEO Jegen dismissed concerns about the future of the business, saying that the deal to restructure the debt had altered its trajectory.

“With this transaction we have sufficient liquidity to weather any storm,” he said.

Bondholders’ Options

Hema’s creditors, which include investment firm GMO, Atlanta-based Invesco Ltd. and Copenhagen-based credit firm Capital Four, are likely to seek to sell the retailer to make up for the debt losses, according to Wolfgang Felix, founder and senior credit analyst at analysis firm Sarria.

“I don’t think the bondholders are in this to own Hema outright and sit on it for a long time,” he said.

Representatives for all the bondholders named in this article declined to comment. The senior secured notes are quoted at 59 cents on the euro, down from 89 a year ago, according to data compiled by Bloomberg.

If a sale goes ahead it may allow Boekhoorn to return. In a rare public statement on June 15 the investor said, “I have been an admirer of Hema all my life” adding that he would, “continue to follow it closely in the near future”.

Of the bondholders he said that the debt documentation allowed for a certain amount of “ruthlessness”. Boekhoorn’s investment vehicle Ramphastos declined to comment on whether it will make a new offer for the retailer.

Another possible candidate to buy the company is rival retail chain Blokker whose parent, Mirage Retail Group, already made an offer to the bondholders on June 11 before the restructuring negotiations were finalized. A spokeswoman for Blokker said the process is ongoing and declined to comment further.

Jegen himself suggested that the bondholders are unlikely to hang on to Hema. “They are not a natural fit to be a long-term owner, that’s obvious,” he said.

Crowdfunding Campaign

The interest in the retailer, which employs about 20,000 people and has more than 700 stores, doesn’t just come from prospective buyers. Fans of the retailer recently set up a crowdfunding campaign to save it from collapse, under the hashtag #WeLoveHema.

“Hema is the store where you go for just about everything,” said Noor van Dort, a 32-year-old teacher shopping in a Hema on one of Amsterdam’s main shopping streets. “The first thing you do as a Dutch person when you think you need something is ask; does Hema have it?”

The company has expanded to have outlets in 12 countries and over the past year it signed deals to have its products stocked in Walmart Inc. in the U.S., Franprix stores in France and Jumbo stores in the Netherlands.

Some question whether the debt overhaul will be enough. Analysts at Lucror Analytics wrote in a note to clients June 16 that they’re “concerned” that the company’s liquidity post-restructuring “could again become tight” with only 42 million euros of additional cash provided.

Furthermore, recent strategic partnerships such as those with Walmart and Franprix “barely move the needle” in terms of earnings, Neill Keaney and Belle Yang, analysts at CreditSights in London, wrote in a report to investors June 17. The ramp up of Hema’s online operations will also be costly and take time, they said.

“Questions remain around Hema’s market position and brand valuation in the face of intense competition,” Keaney and Yang wrote. “The size of the challenge ahead remains an open question.”

©2020 Bloomberg L.P.

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