18 hours ago
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The expected collapse of the high street retailers Claire’s and The Original Factory Shop, with 2,550 jobs at risk, has put the previously little-known investment firm Modella Capital in the spotlight.
The UK-based firm, which bought the two troubled chains within the last year, was set up by a group of restructuring professionals four years ago and has risen to prominence.
It bought the arts and crafts retailer Hobbycraft in August 2024 and last March agreed to buy the high street business of WH Smith, now renamed TG Jones.
Modella has stepped into a gap in the market for investors in medium-sized struggling retailers left by the likes of Hilco, which once bought HMV and Homebasebut has now moved on. It has chosen to take risks on troubled businesses with few potential buyers as private equity is largely steering clear of a tough consumer market.
In its short existence, Modella has gained control over businesses totalling about 900 shops and employing about 10,000 staff. It has gained a reputation for rapid and hard-nosed restructuring, putting Hobbycraft and The Original Factory Shop through an insolvency procedure known as a company voluntary arrangement (CVA) in order to reduce rents and close stores within months of taking them over.
Hobbycraft has closed 18 of its original 124 stores under Modella’s ownership, leading to the loss of 600 of the original 2,400 staff. The Original Factory Shop, meanwhile has closed 41 stores and exited its Burnley head office and distribution centre, moving to new premises.
The potential collapse of Claire’s and The Original Factory Shop, revealed on Monday, is likely to result in all stores closing – 154 and 140 stores respectively.
Despite stepping away from Claire’s within a matter of months, one industry insider said Modella and its wider group was likely to have “made a lot of money” out of the deal, including from stock clearance takings.
In September, Modella took out a charge on Claire’s UK assets as security against a loan understood to be worth about £7.5m. It will be one of the lead secured lenders in line to benefit from the any administrator’s sale of the retail chain’s assets such as stores and stock, while some suppliers are likely to lose out.
However, it is understood that Modella’s returns on investment are not strong after it ploughed money into the failed turnarounds and it does not expect full repayment of debts that will sit behind payments to employees and HMRC.
Despite that, it continues to look at further potential retail deals.
Modella is part of the Hay Wain group controlled by the former Touche Ross and RJP accountant and turnaround expert Jamie Constable, who co-founded the investment firm Rcapital in 2004. His group now includes the stock clearance advisory firm Retail Realisation; the Blazehill credit fund, which lends to chains that struggle to borrow from mainstream banks; and the specialist investment firm Quilam Capital.
Constable is “investment adviser” to most of the businesses, several of which, including Modella, are chaired by Steve Curtis, a former WH Smith and Boots executive. Curtis was previously involved in deals to buy the troubled stationery chain Paperchase, which is now owned by Tesco, as well as the specialist retailers Tie Rack and Feather & Black.
The group relies on a mix of its own funding and backing from specialist funders including the Secure Trust Bank and the one-time Body Shop owner Aurelius, which extended its £12m loan to The Original Factory Shop after Modella’s takeover last year. Modella also put up £3m of investment funds on top of the price it paid for the retailer.
A spokesperson for the company said: “Modella Capital is committed to acquiring and turning around important retail businesses with the aim of returning them to growth, preserving jobs and contributing to communities, despite a highly challenging macro backdrop.
“Very sadly, Modella had to initiate insolvency proceedings for The Original Factory Shop and Claire’s Accessories UK & Ireland. Due to a combination of very weak consumer confidence, highly adverse government fiscal policies and continued cost inflation, neither had a realistic possibility of trading profitably again.”
One restructuring industry expert said that while Modella had a good array of restructuring and stock clearance experts, “I’m not sure they have got many people who understand the trading of businesses”.
Retail industry insiders said Modella had been looking to pull the plug on Claire’s retail stores since before Christmas as the group had faced heavy competition. The source said the profit margin on Claire’s cheap jewellery and services could “no longer support the cost of physical retail”.
It is understood that Modella also struggled to gain enough deals with landlords to continue operating beyond January.
In the UK and elsewhere, Claire’s faces heavy competition from the likes of the Chinese-founded cut-price online specialists Temu and Shein as well as fast fashion brands, from Zara to H&M, which also sell jewellery targeted at teenagers.
“Everyone is taking a little bite and it’s too much. It’s a difficult business,” the industry expert said.
Ames Watson, the US owner of the Claire’s brand, is now understood to be hunting around for new licencees for the UK as Modella is expected to step away from the chain completely. It had promised, under a five-year deal, to keep stores open and add Claire’s into hundreds of TG Jones outlets.
While a buyer may yet be found, Modella’s quick exit from Claire’s and The Original Factory Shop is likely to raise fears about the future for TG Jones.
Under its deal with WH Smith, which continues to operate stores in railway stations, airports and hospitals, Modella is blocked from restructuring the high street chain until next summer, but one industry insider said: “After that, all bets are off.”
