Manchester Multi Store Retailer Struggling Due to Competition and The Economy

The Challenge

A multi-branch branded clothing retailer in the Manchester area, with a turnover of approximately £2.4 million in 2018, was facing severe financial difficulties. Despite its established brand, the company was struggling due to a combination of factors, including a downturn in the economy, increased competition, and high fixed costs. A number of the company’s retail outlets were underperforming, and the high expenses for staffing, utilities, and rates were a major drag on profitability, resulting in a loss of £1.7k for the year. The directors had identified these issues and were looking for a formal mechanism that would permit them to restructure the business and address these unsustainable costs without resorting to liquidation.

The Solution

The directors contacted RMT KSA, who was appointed on May 6th, 2019, to assist with a Company Voluntary Arrangement (CVA). The CVA proved to be the ideal vehicle for a multi-branch retail operation to implement a radical restructuring strategy. As part of the plan, the company used the CVA to terminate the leases on three underperforming shops in Manchester and its warehouse. This was a critical step in reducing fixed costs. The company also dealt with claims for Retention of Title from creditors, which could have led to all stock being removed and the company being unable to trade. The directors navigated this challenge to ensure the company could continue its operations. The CVA also enabled the company to make eight redundancies, with the resulting claims included in the CVA. The plan proposed a dividend of 42 pence in the £1 to creditors.

The Results

The CVA was a resounding success, being approved by 77% of the creditors at a meeting on September 15th, 2019. The CVA allowed the company to significantly restructure its operations and financial obligations. By closing three unprofitable stores and the warehouse, and renegotiating leases on two other remaining units, the company was able to reduce its fixed costs by an impressive 40%. The CVA also provided the legal framework to save 19 jobs, while managing the eight necessary redundancies. The company successfully paid a dividend of 42 pence in the £1, which included a claim for the redundancies. This case demonstrates the power of a CVA as a flexible tool for restructuring a retail business, allowing for the termination of unprofitable leases and the reduction of overheads to create a leaner, more viable company.