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Editor's Comment: Retailers look to CVAs to shake off legacy leases

Keely Stocker

Company voluntary arrangements (CVAs) have been a theme in fashion retailing this week: high street retailer BHS and department store group Beales both proposed CVAs as way of sorting out their store estates in the last few days (news, p2).

BHS came as no great surprise to anyone. The struggling chain’s turnaround plan has been faltering, while a number of long lease agreements have been hanging around its neck. The CVA is an attempt to reduce its store portfolio and renegotiate rental costs. BHS’s adviser, KPMG, has outlined the risk to landlords of rejecting the CVA proposals when they vote on March 23. Speaking to those in the property industry, most landlords will have expected some sort of move from BHS and prepared for it over the past 12 months or so. BHS reportedly tried to renegotiate directly with landlords before going down the CVA route. Landlords will have done their due diligence and be aware of their options. 

While it is sad that any retailer has to resort to a CVA – and, in this case, shed head office and store management jobs in the process – chief executive Darren Topp has argued that it is a necessary measure to “reset” BHS and ensure its long-term future. It is a year since Arcadia Group offloaded the chain for just £1. If the business has any chance of moving forward, it must become more streamlined and multichannel in its approach.

But from a landlord’s point of view, a CVA may not be the best option. As one property expert said to me this week: “If I were a landlord, I’d take my chances. It might be the case [if BHS goes into administration and landlords have to seek alternative tenants] that landlords have to drop rent slightly, but at least they will have a decent tenant. I would be thinking that I’m not convinced of the future of BHS and would rather move on now, while the market is buoyant, than be back in this situation in 18 months’ time, when it might not be as strong.”

Whether creditors agree to the CVA or not, there will be an impact on BHS’s relationships with suppliers. Some or all of its 40 “category 3” loss-making stores are likely to close, so the size and turnover of the business will be reduced. This will shrink the retailer’s buying power with suppliers, who will in turn increase charges, which will impact on margins. Even if his proposals succeed, Topp will face this challenge. 

Beales also put forward plans for a CVA this week, signalling just how tough times are in bricks-and-mortar retailing. One of the government’s proposals to help the high street to compete with online is to relax Sunday trading restrictions. After Drapers went to press this week, the Enterprise Bill, through which the government plans to bring Sunday trading changes, was debated by MPs. If passed, larger stores will be able to stay open longer than the current six hours on a Sunday.

As with BHS, the general feeling in the fashion sector is that the Sunday trading changes have long been inevitable. Despite some suggestions to the contrary, many shop workers are open to longer hours on a Sunday. The government’s proposal will allow workers to opt out of Sunday shifts altogether for religious or family reasons, or just opt out of working the extended hours. The Scottish National Party was initially against the proposals – which only apply in England and Wales – because of fears it could drive down Scottish workers’ wages. But on Tuesday the party’s concerns appeared to have been assuaged and Scottish MPs were expected to abstain from voting on the matter, helping to smooth the bill’s passage through the House of Commons.

For the last few years, retailers have focused on providing shoppers with a multichannel experience that allows them to shop any time, anywhere. Increasing Sunday trading hours will enable them to provide an enhanced bricks-and-mortar retail experience that will be welcomed by most consumers.

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