More high street brands join the CVA bandwagon
Following LK Bennett’s recent administration, Debenhams has become the latest high-street name to experience further financial difficulties. Debenhams’ shares dropped 12% on Tuesday morning, as the department store announced it expects to miss its profit targets. In an attempt to quell the downturn, Debenhams’ plans to close up to 50 stores and has entered into a Company Voluntary Arrangement (CVA) to restructure its leases and reduce rent.
The wider retail sector continues to be hampered by declining footfall and increasing occupancy costs causing others such as Giraffe, Ed’s Diner, Byron and Paperchase to also explore the CVA route as a means to restructure their balance sheets and lower rents, with Paperchase aiming to cut their rents by as much as 50% in some stores. Paperchase has also looked to negotiate turnover-linked rents as a creative solution to their seasonal business model.
As Debenhams and others join the CVA bandwagon, concerns have been raised that the reduced rental obligations are being used to paper over the cracks of under-performing businesses who should instead look to undertake a more significant overhaul of their finances.
Moving forward it will be interesting to observe whether a CVA can overturn Debenhams’ fortunes or whether landlords will take a tougher stance and challenge this in the courts.
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