Analysis: Are CVAs dead?

PwC retail expert and partner Mike Jervis believes the controversial mechanism – usually used to shed stores and stave off administration – has become unpopular.  “Many CVAs fail if they don’t address the fundamental viability of the underlying businesses, and instead simply focus, say, on store closures,” he says.

Jervis has a point. CVAs are increasingly being seen as a short-term fix to a long-term problem, and recent examples of CVAs in the retail sector do nothing to dispel that idea.

Among the first high profile retailers to successfully attempt CVAs were Focus DIY and Blacks Leisure in 2009. Both struggling retailers were able to shutter swathes of shops, yet both eventually called in the administrators – Focus less than a year later, and Blacks in January 2012.

Perhaps the most high profile of them all has been JJB Sports, not least because it managed to convince landlords to back it through the CVA process twice - once in 2009, and again in 2011. And we all know what happened next – it seems even two CVAs were not enough to save the sportswear retailer, which hit the wall last year.

Rather tellingly, there hasn’t been another large-scale successful CVA since.

They are viewed by many as an unnecessary and at times unhelpful way of prolonging the inevitable. Strong retailers have long taken umbrage when their, as they would view it, poorly run and weaker counterparts are able to shed stores while successful companies have to continue operating their own underperforming shops without having to incur heavy costs unless leases happen to be up for renewal.

When the recession really took its toll, from the demise of Woolworths in late 2008 onwards, landlords were understandably more willing to agree to a CVA than risk an empty shop. But as economic conditions have stabilised, landlords are finding their resolve again and are seemingly less minded to take the hit as as they once were.

CVAs can be a force for good – they can save jobs and keep shops open – but unfortunately both of these positive outcomes are short-lived if a retailer ends up calling in administrators anyway.

While PwC may have a commercial interest in heralding the growing unpopularity of CVAs – its rival KPMG has made a lot of money out of the process in recent years – going by the judging by the lower number of retailers to use the method in recent years, it looks as if they have lost their sheen.