The shake-up came as the high street company revealed losses of £15.7m. The Storehouse name will disappear.
The split will not be completed until the year 2001 but the search for a new chief executive has been called off, company bosses said.
But they also outlined plans to turn the two retail stores around, involving a strategic review, with Bhs expanding in-store food sales.
Storehouse shares have been performing poorly this year and the shops have suffered from weak sales and higher costs.
The half-year pre-tax loss of £15.7m was in sharp contrast to its profit of £38m last time.
Poor clothing sales were mostly to blame for a drop in sales.
In the five weeks after the end of the trading period, like-for-like sales stripping out income from new stores fell by 6.4%.
Sale or merger options
Storehouse, originally created by merging Bhs and Mothercare, said it had also considered other options including a sale or merger as part of a fundamental review of the group.
Critics say Bhs has done little to update the cheap and dowdy image of the old British Home Stores.
Shopping analyst Katriona Campbell of Interbrand, Newell and Sorrell, said brands are vital and Bhs needs to distinguish itself from other high street stores.
Earlier this year, Storehouse chief executive Keith Edelman quit following a warning that the company faced a cut in profits.
Profits dropped from £125m to £98m in the year to March.
And Bhs undertook a cost-cutting programme involving closing one in five stores.
Speculation
There had been City speculation that the chain would seek a buyer, such as the Arcadia group, owner of Top Shop and Burtons.
Storehouse once included the names Richards and Habitat, but they were sold off many years ago.
Chairman Alan Smith said: "We have concluded that the current holding company structure no longer adds value and we intend to implement a major restructuring of the business to enable Bhs and Mothercare to operate as independent companies."