With news this morning that Debenhams has secured an emergency cash injection of £40m, Shauna McStravick, Manager of Business Recovery and Insolvency, looks back on a difficult 12 months on the High Street.
Two years ago, the British Retail Consortium warned there could be up to 900,000 fewer jobs in retail over the next decade. You could be forgiven for thinking that this was perhaps overzealous considering this referred to an industry that is the biggest employer in the private sector! However taking a look back over events in the retail sector in the last 12 months, it seems that this prediction is now starting to play out, with Debenhams being at risk of being the latest in a long line of high street casualties.
Nearly 1,000 retail businesses went into administration between January and September of 2018, the highest number in five years. Household names such as Toys R Us and Poundworld disappeared from the High Street altogether and a further 26 big companies, including New Look, Carpetright, Mothercare and Homebase, opted to close stores to save on costs, using an insolvency procedure known as a Company Voluntary Arrangement (CVA).
Debenhams is the latest Company feeling the pressure and has just secured a cash injection of £40 million which will act as a short term lifeline, buying more time to avoid collapse. The 240-year-old retailer is currently saddled with debt of a staggering £321 million across its 165 stores. It is reportedly now pursuing a CVA as a longer term solution which will allow it to obtain rent reductions from its landlords and close a multitude of stores.
The problem for most big retailers seems to be that they have signed up to onerous lease agreements. As well as struggling with the shift in spending habits to online and the “unknown” that is Brexit, retailers have been hit with rising costs - from wages and business rates to new regulatory changes such as the introduction of GDPR. The combination of the foregoing has put pressure on retailers and so it isn’t surprising that we’re seeing a rise in CVA’s and insolvencies.
A CVA is a very popular rescue mechanism for Companies with a sound core trading business but with a requirement for some form of formal debt write off and/or time to pay arrangement. They are increasingly being used by retailers as a way to continue to trade whilst dealing with its cash flow problems, which is often beneficial to the creditors, employees and the Company. If proposals and financial projections are realistic, they will often have a good chance of success.
As Licensed Insolvency Practitioners, CavanaghKelly can advise your Company on the options available should it find itself coming under financial pressure.
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