Retales of Three Retailers
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"Have you considered 'Retailers of the Expected'?" Michelle offered in response to Aarati's request for a headline for this very news bulletin. Tracee initially thought she had heard of Roald Dahl, but further investigation evinced her thoughts.
"What has a clown in a red wig got to do with clothes shops and their money problems?" she said. Conversation in the newsroom stopped and time stood still, as we all sat and chewed over this question. Finally, Michelle said.
"Oh, Trace, you mean Ronald McDonald! No, we were talking about Roald Dahl."
We all looked at Tracee. Nothing registered and we were about to call time of death, when Michelle tried again.
"Roald Dahl wrote Tales of the Unexpected." But she might as well as been explaining the workings of the warp drive in Clingon.
We went with 'Retales of Three Retailers'.
The three retailers in question are New Look, Select and River Island and they are in the news this morning (Friday 14 August) for two different reasons. New Look has proposed a Company Voluntary Arrangement ('CVA') to move its 496 shops to turnover-linked rents as part of a plan it says will safeguard 12,000 jobs. It has agreed a deal with banks and bondholders to recapitalise the business, but that could be regarded as 'the easy bit', as the financing will require support from company’s landlords who, in common with their sisters and brothers of the leasing fraternity, are bent, bloodied and laying prostrate on the canvas of the restructuring of the landlord - tenant dynamic.
Those very landlords were passed a towel, staggered to their feet and crossed the high street to Select, to face an attempt by the fashion retail chain to cut rents and break leases on stores that have received discounts during the pandemic. They took out their mouth guards for enough time to describe this move as “deplorable”. Property owners, local authorities and the tax authorities stand to lose millions of pounds under the CVA proposed by Select, the third put forward by the fashion retailer in as many years (how many will it take before someone, somewhere says, "ENOUGH. You aren't good enough to survive"?). The retailer has proposed to pay no rent for 49 stores (and when you hear this proposal as a landlord, you are either waiting for the punchline, or looking to hear the word 'however', followed by a sparkling proposal that makes that sentence opening vaguely attractive). The 'however' is (however) worse. The insolvency deal being proposed would also give Select new powers to break leases early that have benefited from rental discounts. The company has proposed moving 99 stores to turnover-based rents and terminating a further nine leases.
It's time for Melanie Leech, chief executive of the British Property Foundation, to stand up and say something in support of her landlords. And she did; “It is deplorable that this business is again attempting to exploit the CVA process by proposing to pay no rent for many of its stores and, in giving little indication of how long the CVA will last, failing to produce a credible rescue plan." Yeah, Melanie, you tell them. But also understand this; it is also despicable to squeeze the rent on prime high street premises as hard as you can for year-upon-year and not to expect fallout, particularly as the online shopping writing has been on the virtual and actual wall for many years. We may not have seen Covid-19 coming, but we sure as hell knew the landlord - tenant conversation was going to happen, and not all the words used would be pretty.
The chief executive of New Look, Nigel Oddy said the CVA was being launched “out of absolute necessity”, as the chain's finances had been laid waste by the results of recent history. And they are trying, New Look has re-opened 459 of its 496 stores since the relaxation of Government restrictions. Next door, Select is owned by Ozdemir Uc Tekstil, his family’s clothing manufacturing business. They trade from 148 stores in the UK and have an online business, which accounts for 10 per cent of the group and delivers to destinations across Europe. It said that Ozdemir stopped funding the company during the pandemic, which meant rent was unpaid while premises were shut. The retailer was forced into a third CVA after a landlord failed its second one for late payment of rent in March. He said that the measures were necessary to avoid redundancies.
Back across Oxford Street to New Look; if the CVA is successful, the company will carry out a debt for equity swap to reduce its senior debt pile from around ￡550 million to ￡100 million. Creditors have also agreed to inject ￡40 million of new capital to support the retailer’s business plan to strengthen its online retail arm.
The story at River Island is different today, but no less bleak. The company is to cut up to 350 senior shop roles as it struggles to deal with the lockdown and shift to online shopping. Will Kernan, its chief executive, said, “We are now in the process of restructuring our retail teams by simplifying our store management structures. With a heavy heart, I can confirm that these changes will potentially impact up to 350 store management and senior sales roles.”
If those three companies ultimately fail (and tune in later for more on that) there are others out there who are chomping at their bits. The sales may be interesting this winter.