CVAs can be a effective option for embattled retailers, but history is littered with examples where it was an ill-suited approach to pursue.
Proposed Company Voluntary Arrangements (CVAs) by two famous high street names in the space of a week have swung the spotlight firmly back on to this controversial process.
The historic department store Beales, which operates 35 shops, is seeking to secure a 30% reduction in rent for 10 months on 14 stores while it negotiates whether to continue trading from them.
The proposal follows hot on the heels of the more high-profile BHS, which is seeking rent reductions on half of its stores through a similar deal.
In both instances, each company now faces a battle to secure the backing of the 75% of affected creditors by value needed to make the CVA a success.
And in the case of BHS, the retailer has warned it will not have the financial firepower to meet debt and working capital needs beyond the next rent quarter date – piling pressure on creditors to play their role in saving this famous name.
That pressure was compounded when BHS told its creditors they could lose up to £1.3bn if they do not agree to the proposals to save it.
Make-or-break moment
CVAs can be a powerful force for good, saving jobs and keeping shops open through an agreement that falls short of the traumas associated with an administration.
“The reputation of the CVA as a restructuring tool has been tarnished by its use, time and again, in situations where it has been ill-suited”
Chris Brook-Carter
Yet these positive outcomes are short-lived if a retailer ends up calling in administrators anyway.
The reputation of the CVA as a restructuring tool has been tarnished by its use, time and again, in situations where it has been ill-suited.
The key of a successful CVA is a viable underlying business and too often over the course of the economic downturn they were used as a short-term fix for long-term problems, merely prolonging the inevitable demise of poorly run or obsolete businesses.
Focus DIY, Blacks, JJB– each agreed CVAs only to plunge into administration at later dates.
Both BHS and Beales argue that expensive legacy leases are dragging otherwise stable businesses down. But neither retailer is alone in dealing with what they see as unfavourable leases agreed in very different economic circumstances.
BHS boss Darren Topp told Retail Week there are about 1 million transactions in BHS stores every week, evidence, he said, of the retailer’s enduring appeal.
As negotiations hot up he must convince a sceptical market BHS has the staying power to build on that base.
Inspiring retail
Topp will be one of the high-profile retail chiefs speaking at Retail Week Live and has the opportunity to make the case to the industry in person that BHS has a long and vibrant future.
He is joined across two days of inspiration and insight by a stellar cast of speakers including Matt Davies of Tesco, Ted Baker’s charismatic founder, Ray Kelvin, and Virgin Atlantic boss Craig Kreeger. It promises to be an unmissable two days.
There are a few tickets still available at live.retail-week.com and we’re looking forward to welcoming as many of you through the doors as possible.
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