Furniture chain Harveys is dragging down Steinhoff's otherwise successful UK household goods operation.

This would be a reasonable conclusion to draw from new interim results that describe Bensons for Beds performance as strong and Harveys as loss-making.

Steinhoff's UK household goods business, which includes the two retail chains and its sofa and bed manufacturing units, recorded a €31 million operating loss before capital items in the six months to end March 2018.

In addressing the liquidity issues thrown up by its accounting problems, the existence of which were first disclosed last December, Steinhoff began generating cash by offloading non-core assets. These have spanned everything from a private jet to shareholdings in third-party run companies.

Operating Companies

More recently, it agreed to sell its Austrian Kika / Leiner furniture retail businesses, an indication that ridding itself of troubled operating companies was not considered taboo.

So could Harveys be a disposal candidate?

We think that is unlikely. Firstly, a disposal would require not only a vendor but a willing buyer. Short of undesirables intent on maximising hidden value, it is hard to think who might — in this retail climate — be in the market to acquire Harveys and invest in its wellbeing.

But more significantly, Harveys appears to be at the heart of the Steinhoff UK household goods stable and a sale risks compromising its successful Bensons business.

Steinhoff says that store openings and capex projects have been put on hold, and it is clear from its latest results that the store rationalisation programme continues.

At the end of March, Bensons is trading from 254 stores, 13 fewer than six months earlier, while Harveys has 143, after closing 18 stores. That makes 397 stores in all.

Shared Sites

Only it doesn't, because of course Bensons and Harveys co-occupy a large number of shared stores.

125, in fact, according to a Steinhoff presentation released earlier this spring, meaning Harveys only trades from a handful of standalone sites. Retaining and turning around Harveys, painful while it remains loss-making, is surely therefore the best option for Steinhoff.

Countless retailers have been vexed by co-locating in the past. Back in 2011, The Furnishing Report revealed plans by Mattressman, the beds retailer, to go national by expanding its concession base in Focus DIY stores. Within months, those concessions had to close as Focus DIY entered administration.

More recently, furniture and accents retailer Habitat rolled out close to 100 concessions in Homebase stores, only for Homebase to be sold and its new owner, Wesfarmers, to decide to reclaim all the space previously given over to concessions. Once Habitat was sold to Sainsbury's, it had to start building out its store network almost from scratch.

The futures of Bensons and Harveys are surely intertwined with one another, which is why Steinhoff has establishing a new senior leadership team at Harveys and is enacting a considered turnaround plan with new people and new ideas. It is the least bad option.

Related Stories
— Steinhoff UK household goods division records €31m half-year loss
— Write-offs, losses decimate Steinhoff equity
— Harveys, Bensons store numbers and size between 2012–2018 (Omnia)

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