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New Look in spotlight as property sources criticise CVA

Property industry insiders have questioned how effective New Look’s company voluntary arrangement will be at turning the business around, as some raised concerns over the retailer’s debt.

New Look’s CVA, proposed earlier this month in a rescue plan to reduce its UK store estate and rent costs, gained approval from 98% of its creditors.

It is set to close 60 out of its 593 stores in the UK, alongside a further six sites sub-let to third parties. The process, expected to take three years, will also result in up to 980 job cuts.

The CVA also includes revised lease terms and rent reductions ranging between 15% to 55% across 393 stores.

While approval of the CVA was broadly accepted in the industry as an “inevitable” outcome, several questioned how effective it would be in alleviating the retailer’s £1.2bn debt pile.

A commercial property investor said: “Debt is the key issue – the landlords still [think] there needs to be a debt restructuring. This is yet another example of a CVA beating [up] the landlords.

“New Look is not like any of the big department stores tied into 20-year leases they can’t get out of – it actually has a lot of flexibility in its portfolio [regarding short lease terms].

“So rents are not the main problem – it’s debt. Unless they sort it out the business is still [in choppy waters]. At some stage there’ll be a restructuring.”

A senior source at a commercial property agency agreed: “I’ve not seen any detail on how [this] impacts on New Look’s debt, which is [what is really] pulling the company down.”

He added that despite these reservations, the landlords had little choice but to agree to the CVA: “The process is always difficult for the landlords. They’re not the biggest of all the creditors, so a vote on this would always have gone through. In most cases landlords prefer to take the [cut] as there aren’t many other options – most are quite resigned to the fact that they would rather have New Look [in their portfolios] than not.”

The landlords are not only frustrated – they are also concerned it will open the floodgates for a lot of other retailers

Other sources have pointed to concerns that the move will prompt an influx of CVAs from other struggling retailers, as they continue to seek ways of reducing costs.

One property source said: “There was never any doubt the CVA wouldn’t go through but the landlords are not only frustrated – they are also concerned it will open the floodgates for a lot of other retailers.

“New Look is one of the more credible parties that have opted for a CVA – in the past it has mostly been the discounters, or businesses expected to fail at some point, using this method. So other big retailers might see this and feel it is unjust that they have their portfolios to pay for without using this process, and look to take this route as well. I think there will be a number of others.”

Despite these criticisms, some voiced their support for the retailer’s strategy.

Mark Robinson, property director and owner at shopping centre investor Ellandi, said: “The reason the CVA had a good level of support is fundamentally, notwithstanding short-term trading difficulties, the industry believes they are a great, British brand with a future.

“It’s a reflection of the professional way its property team has dealt with [issues] in the past – [that] they are people we feel we can do business with going forward.”

Readers' comments (1)

  • Good to hear the landlords not getting the blame. That is firmly with New Look and this won't be the end of it. Another Great British Mess.

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