The encyclopedia · Finance & Accounting · Financial decision · 1989–2009
Baugur Group, Iceland's retail empire, collapsed in the 2008 financial crisis
Baugur Group grew from a single Reykjavík supermarket to owning Hamleys, Karen Millen and House of Fraser stakes, then filed for bankruptcy in March 2009.
Baugur Group hf. · 2009-03
What happened
Baugur Group began in 1989 when Jón Ásgeir Jóhannesson and his father Jóhannes Jónsson opened a single Bónus supermarket in Reykjavík, Iceland. Within a decade it had become the dominant food retailer in Iceland and was listed on the Iceland Stock Exchange in 1998.
In the 2000s, Baugur embarked on an aggressive international expansion, using borrowed money to acquire major UK retail assets. It bought Hamleys in 2003, Goldsmiths for ISK 14.4 billion in 2004, and Karen Millen for £120 million in 2004. By 2008 Baugur held stakes in Debenhams (13%), House of Fraser (35%), Woolworths (12.4%), Moss Bros (28.5%), and Somerfield (3%), and fully owned the Mosaic Fashions group (Oasis, Coast, Karen Millen, Whistles).
When the Icelandic banking system collapsed in October 2008, Baugur's debt-funded empire could not be refinanced. Restructuring negotiations with its largest creditor, Landsbanki, broke down. Baugur applied for creditor protection in February 2009 and filed for bankruptcy in March 2009. Its retail assets were sold off piecemeal. Founder Jón Ásgeir Jóhannesson had been convicted of bookkeeping violations in 2007.
Why it happened
- Baugur's entire expansion was funded by debt from Icelandic banks — when those banks collapsed in 2008, the company could not refinance and had no access to capital.
- The group acquired UK retail assets at inflated prices using borrowed money, leaving no equity cushion when the financial crisis hit and asset values plunged.
- Restructuring negotiations with Landsbanki, Baugur's largest creditor, broke down when the bank itself was in crisis and could not extend further credit.
- Founder Jón Ásgeir Jóhannesson had been convicted of bookkeeping violations in 2007, damaging confidence and making it harder to raise alternative funding.
The lesson
When your entire business is built on borrowed money, you do not own your company — your creditors do. The moment they stop lending, the empire collapses, no matter how many famous brands you own.
Sources
spotted an error? The club wants to know.
More like this
Ahold overstated profits by $1.1B — and lost two-thirds of its market value
Life Nordic wellness chain filed for bankruptcy — 200+ stores, 487 jobs lost
IKEA Norway dropped ads showing puke and dog pee after viewers complained
Somewhere, someone solved the problem this company failed at. 2nd Opinion →
Comments · 0
Sign in to join the comments.