13 have gone into administration since 2016
Colliers International has revealed by tracking Company Voluntary arrangements (CVAs) since 2016 that out of 23 retailers that underwent a CVA, 13 have gone into administration.
David Fox, Co-Head of Retail Agency at Colliers International commented: “In a retail world of structural change, where turnover or profit has not been covering debt costs, many retailers have been going into automatic administration or have undertaken a Company Voluntary Arrangement (CVAs).
“The CVA was designed to help struggling businesses and to avoid administration by lowering costs, rent roll, undertaking store closures, reducing staff numbers. However, it does nothing to address the high debt levels. That requires restructuring, refinancing and/or debt write-off.
“As our analysis reveals, for many brands, the CVA, therefore, fails and an administration will result. It is clearly not a mechanism that can be guaranteed to deliver a long-term viable solution, it merely just delays the inevitable future failure pushing out the problems for the next couple of years, creating even more polarisation in the market place.
“Some operators who have not necessarily been in financial difficulty have also been using CVAs opportunistically to free themselves from the leases or renegotiate terms on underperforming stores as a route to reduce costs. With rents reduced by CVAs, other retailers as such have started negotiating rents down, arguing that they want a level playing field, so landlords have been suffering across the board. In turn this is having a country wide negative effect on the viability of dozens of shopping centres.
“In a number of these instances some of the companies that have been through these processes have been a direct result of highly leveraged private equity buyouts , and the entire business model has been unbalanced by obligation to meet loan repayments. The private equity houses would use the debt to ramp up expansion and profile of brands, receiving capital inducements from landlords further leveraged against what can now be viewed in retrospect as high rents.
In the context of wider structural changes within the retail sector and changes in shopping patterns , this process could be considered the game of today but the CVA of tomorrow – a sticking plaster solution to cover up a wider issue.
Where once debt was seen as the solution to building businesses , in retail the participants access to lenders cash – shoppers, occupiers and landlords – has become systemic.