Select, the fashion brand, has proposed a Company Voluntary Arrangement (CVA) to its creditors in the hope of shedding some of its loss-making stores.
This move has put approximately 2,000 jobs at risk and has had a heavy impact on consumer confidence.
It is just the latest brick-and-mortar retailer to feel the pressure of a competitive and changing market but seems to be very proactive in its approach.
Here we shall examine what Select intends to do via a CVA and suggest what this might mean for their employees and the future of the brand.
Who is Select?
Select is a UK high street fashion chain. Its parent company is Genus UK.
The brand has 183 stores in the UK and sells approximately 4,000 items online.
Select specialises in ladies’ fashion and targets 18–35-year-olds; a highly competitive market.
Why does it need a CVA?
Mothercare, Carpet Right and House of Fraser are also at risk, while New Look has already announced plans to close 60 stores in an effort to become a viable business once more.
There are several reasons for the increase in pressure on UK retailers:
- Brexit uncertainties
- Weak pound
- Increase in the living wage
- Soaring business rates
- Falling consumer confidence
- Shift to online shopping
Select has fallen foul to all of these. Its parent company, Genus, reported a £1.5 million loss on sales of £8 million in 2016.
They have called in the corporate recovery firm, Quantuma, to assist with the CVA.
Andrew Andronikou, a partner at Quantuma, says that Select’s decision to use a CVA reflects “the current prevailing issues for businesses trading on the high streets.”
“The business has suffered as a result of the depressed retail market and escalating rent and rate charges.
“This inevitability has caused a squeeze on cash flow resulting in a cash burning for a number of years.
“The position for this business, and many businesses of the same model is no longer tenable and has escalated to the present situation where a CVA is considered to be the only option, other than closing in its entirety”.
It is hoped that this CVA will help Select shed failing stores. However, Genus UK says they will not actually close them.
Instead, the proposal in the CVA gives landlords an option to “take back loss-making sites” so they can find a buyer that can make complete rent payments.
However, this is not guaranteed, so landlords must consider their position carefully. They may be better off if they offer Select a rent reduction to ensure a tenant stays in the building and pays their bills in a timely manner.
Both of these outcomes are positive for Select. They will either reduce their costly rental agreements or will exit their leases without repercussions and focus on high-performing stores.
What does this mean for employees?
2,000 jobs are now at risk. However, a CVA will save some current employees from redundancy. This is a much more positive step than liquidation, where employees could have a lot of difficulties securing money owed.
Creditors will vote on the CVA proposal on 13 April. 75% of creditors by value must agree for it to pass. Select employees will probably learn their fate in the days after this.
Mr Andronikou said that Quantuma was “confident” that an agreement would be reached as it would stop “another brand disappearing from our high streets”.
CVA is the best option for Select, and many other high-street brands feeling the economic pinch. The fashion brand will need a radical new business model if it’s going to succeed. Hopefully, it will be able to make changes before the need for terminal insolvency proceedings arises.
If you are in need of a CVA, talk to our Company Rescue experts today.