New Look is now considering a CVA in order to close up to 60 stores, which represents 10% of its portfolio, after a very tough year in which UK sales were down 8% on like for like comparisons. 980 jobs are at risk. The South African owned business will need the permission of its bondholders. The plan also includes a rent reduction and new lease terms for 393 of its stores.
New Look, which is owned by South Africa's Brait, has asked its creditors to approve the proposal by March 21 and all stores will remain open until then. Deloitte is acting as a nominee to the CVA.
It has also been reported that the firm had lost its credit insurance from some of its suppliers that will mean that it will have to pay upfront for its supplies. This has echoes of many other firms that have gone bust where the failure has been precipitated by the withdrawal of credit insurance.
New Look is the latest in a series of High Street names to look at trying to reduce the size of their store portfolios amid rising pressures from online and discount rivals, increased living wage and a deteriorating outlook for consumer confidence.
Expensive High Street stores can be cut back provided that the lease allows for early termination. If not the only way out is to surrender the lease that can be very expensive or use a company voluntary arrangement (CVA).
A CVA allows the retailer to determine its lease obligations which can greatly help the company's cash flow.
Daniel Butters, a partner at Deloitte, said that the CVA “will provide a stable platform upon which management’s turnaround plan can be delivered”.
For more information on why a CVA is a perfect mechanism for helping retailers, read our retailer rescue page
Why not read our case study where we rescued a multi-store retailer