Baugur retreats from US retail venture

The Icelandic firm that this week agreed a £59m bid for toy retailer Hamleys is beating a retreat from its attempt to break into the American retail market.

The Reykjavik firm is trying to offload the majority of its US discount chain, Bonus Stores. It is in discussions to sell more than two-thirds of the 300-strong chain, and admitted yesterday that it is "not optimistic" about the long-term future of the business. Some Bonus outlets in Florida have been repossessed by their landlord.

The credit agency, Dunn & Bradstreet, recently put Bonus in its "highest risk" category and said it had been regularly late in paying suppliers. On a "financial stress" chart of one to 100, where one is the most likely to crack, D&B gave Bonus a two.

Details of Baugur boss Jon Johannesson's failed attempt to set up a US arm to his business come in the wake of allegations that he used company money to hire escort girls for a party on his $1m (£600,000) yacht. He is said to have attempted to use his Baugur credit card to settle the near $20,000 bill for the escorts' services.

On the same day the claims became public, Hamleys told its shareholders to accept Baugur's £59m bid to take over the world famous 200-year-old Regent Street store. Mr Johannesson's company also owns a quarter of the UK supermarket chain Iceland, together with stakes in other British retailers such as Selfridges, Somerfield, JJB Sports and House of Fraser.

Mr Johannesson now sees the company's future in Britain and Scandinavia.

"It has been obvious for some time that the operations in the US were not going as well as people had hoped," said a Baugur spokesman.

The company bought the former Bills Dollar Stores when it was in chapter 11 bankruptcy three years ago. It is 65%-owned by Baugur, with the remainder held by Kaupthing, which is Iceland's biggest bank, and other investors.

Baugur blamed the business's demise on the length of time it was under chapter 11 protection for and said the customer base had disappeared.

The 18 Bonus stores in Florida were owned privately by Mr Johannesson. Three months ago, he decided to pull out and sold 12 leases, returning the other six to the landlord. The landlord filed for repossession.

A spokesman for Baugur said: "It has been a good learning experience. A lot of Europeans who do business there [the US] find it is much more difficult than they had thought."

Baugur has more than 300 Bonus stores in seven states. The plan is to sell 214 stores in states including South Carolina and Texas and pull back to Mississippi, Louisiana and Alabama.

At one point there were more than 400 stores, but the company has been gradually paring back the business.

Baugur is understood to be in discussions with five regional US chains about taking some of the stores off its hands. The talks are said to be at a very early stage.

Mr Johannesson, 34, is said to have lost interest in the US since announcing plans to take Baugur private and told analysts in the spring that he was planning a restructuring of the Bonus business.

Baugur, which quit the Icelandic stock exchange to go private at the end of last week, has a stranglehold on the retail scene in its domestic market. Almost a year ago, their offices were raided following claims from a former Miami-based supplier, Nordica, that it had issued fake invoices to Baugur, allowing it to use company money to cover the cost and upkeep of a 62ft yacht. The police investigation is continuing. Nordica's chief, Jon Sullenberger, alleged in court at the end of last month that one of the invoices in question paid for the escorts who attended the party on the boat in December 2001.

The Icelandic prime minister during a radio interview also accused Baugur of offering him a bribe of £2.5m. Baugur has strenuously denied all allegations.