Up to 150 former WH Smith shops are facing the threat of closure under a drastic restructuring plan to prevent the business from going bust.
The owners of WH Smith's rebranded high street arm have warned of sweeping closures under a radical rescue plan launched on Wednesday.
Investment firm Modella Capital is seeking to slash rents on stores trading under the name TG Jones . It wants to dramatically rein in costs after a sharp decline in trading , which management has laid at the door of both its former parent company and Rachel Reeves, the Chancellor.
Under a last-ditch attempt for survival, landlords will be told to accept long-term rent holidays and steep rent cuts or face the business going bankrupt.
However, Modella's advisers at Teneo are braced for some landlords to resist the rent cut plans, raising the possibility of mass closures and job losses as some consider demanding the keys back to their stores.
In a memo on Wednesday seen by The Telegraph, Modella told staff that the restructuring could result in as many 150 of its 450 stores being closed, claiming that the decision had "not been taken lightly".
TG Jones employs 5,000 people.
"There will be some which the landlords want to take back, because they'll say: 'Well, I don't want zero rent, I want rent from somebody else, even if it's five pounds versus zero pounds,'" a source close to the discussions said.
Under the proposal, eight TG Jones stores will shut immediately, although bosses are predicting an additional 140 more closures in the coming years.
As part of the restructuring, more than 100 stores will face rent holidays, meaning landlords would receive no rental income at all. The agreement would be in place for three years.
If the plan is approved, store owners will be given a rolling break clause allowing them to demand the keys back with eight weeks' notice. Modella can also choose to end the lease if trading continues to deteriorate.
The firm will also demand rent reductions on several hundred more shops, out of a total estate of 450.
The approval of three quarters of creditors and landlords is required for the plan to be implemented.
However, if the threshold is not reached, a High Court judge has the power to force through the deal if Modella can prove that the only alternative is to put the business into administration.
It must also demonstrate that creditors would be worse off under such an outcome.
A court showdown is scheduled for the end of June.
"Most will face rent cuts," another source involved in the negotiations said.
Modella's high street travails
Some landlords may be reluctant to grant concessions to Modella because TG Jones is the third high street chain it has owned that has run into serious financial trouble in the space of just a year.
Attempts to turn around The Original Factory Shop and Claire's Accessories ended with both businesses being put into administration at the beginning of the year, just months after Modella took them over.
Nearly 2,500 people across the two businesses lost their jobs as a result.
Modella will attempt to convince TG Jones's creditors and landlords to back the plans with the promise of a £15m cash injection into the business, having provided £10m of liquidity in recent weeks.
It is also lining up fresh debt facilities of between £40m and £50m.
Investment house Aurelius is replacing Secure Trust Bank as the main lender to TG Jones. The new arrangement was first reported by Sky News.
Aurelius faced widespread criticism for pulling the plug on The Body Shop in February 2024 , just three months after buying the business.
Suggestions that WH Smith could step in with emergency funding are understood to be wide of the mark, despite claims from Modella insiders that TG Jones's problems stem partly from a chronic lack of investment under its previous owners.
Sources close to WH Smith say there is no prospect of it providing financial support.
Privately, Modella executives concede that the firm underestimated the impact of being unable to retain the WH Smith name above the shops under the terms of its takeover. Sales at shops yet to be rebranded as TG Jones have held up better than at rebranded stores.
Meanwhile, increases to employer National Insurance contributions and the National Living Wage are thought to have added several million pounds to overheads.
Modella has attempted to improve the business's fortunes by spending money on shop refits. A total of 14 stores have received fresh capital.
