What has Happened?
The fourth and final quarter of the year is often where fellow shopaholics find the biggest and best bargains. Stocking up on seasonal promos, flashing the cash in the Black Friday sales and of course the post-Christmas ‘let’s spend even more of a fortune’ Boxing Day sales. People usually don’t think twice about nipping into their local shopping centre or high street stores, however now that’s not as easy as it sounds.
The idealised world where one embarks on a day long shopping spree, strolling from store to store along their local high street is long in the past. And that is taking its toll on some of our most beloved retailers.
Prior to the new normal society, it was becoming increasingly frequent that more of our favourite high street shops were falling into administration, applying for CVA’s[1] or closing down completely. Therefore, it’s no surprise that in the midst of a global pandemic trouble seems to be on the horizon for another favourite for many men, women, teens and children, New Look.
What does this mean?
Known as an affordable alternative to the styles showcased in both Topshop and River Island, New Look is an infamous name on the high streets of the United Kingdom. From its trendy teen range, to the classic and comfy maternity clothing, New Look has over 500 shops throughout the UK and is often a popular pitstop when shopping.[2]
But it’s not ground-breaking news that another well-known high street retailer is headed for the rocks, and is Coronavirus truly the catalyst for the perishing High street?
This is not the first time New Look has applied for a CVA, which in-short allows the retailer to determine its lease obligations in order to help contribute to a company’s cash flow. Back in 2018, the company founded by Tom Singh, “used a CVA to authorise the closure of 60 of its 519 branches.”[3] It was reported that the company had faced a “tough year following sales decreasing by 8%, which in turn put 980 jobs at risk.”[4] However, New Look was one name in a string of many high street retailers who used a CVA to reduce their store portfolio, including Select Fashion.
So why is now different? Well, as the Coronavirus pandemic hit, restaurants and pubs were able to adapt, by offering take-out services, which allowed them to continue with earnings. However, the same couldn’t be said for most retailers. Lara Dolden stated: “high streets have become ghost towns as local councils did nothing to reduce/waive rent leaving companies forced to shut down.”[5] Given the circumstances, it’s no surprise that New Look had to renegotiate the deals of their CVA.
The CVA outcome was reached on the 15th of September, where “their aim was to persuade 10 of their 20 largest landlord creditors to support the CVA. “New Look succeeded in persuading over 75% of their disgruntled landlords to reduce rent fees saving 11,000 jobs.”[6] New Look also completed a “debt for equity swap which reduced their overall debt from £550m to £100m”, providing the retailer with a more promising future in an extraordinarily uncertain world. [7]
Impact on the Legal Sector:
Prior to the 27th of September, it seemed the shutters would not be closing on the 519 New Look Stores in the UK. But a small minority of landlords had a different idea. While 75% of New Look’s landlords were willing to cut the cost of rent, “a small group of landlords in the high court are seeking to oppose the plans by the retailer to enter examinership.”[8] Examinership is essentially being granted
The argument between the retailer and the landlord as it stands, is very much indecisive[9] So, while the CVA has been accepted and job security has been confirmed, it seems there is still some reluctance and uncertainty surrounding the future of British retailers.
However, New Look seems to be the first of many retailers facing hardship as Swedish owned fashion store H&M announced plans to close 200 of its high street stores. Perhaps this really is the death of the high street[GU1] .
Assessing Firms:
#HowardKennedyLLP #TraversSmithLLP #MacFarlanesLLP #HoganLovells #HerbertSmithFreehills #DLAPiper #IrwinMitchell #BurgesSalmonLLP #White&CaseLLP #AkinGump #Bird&Bird #Dentons
References:
[1] A CVA is an agreement between a company and its creditors to repay debts over an extended time period. The agreement will include details of debts that are to be written off at the end of the term. Interest and charges are frozen, and creditor action is stayed when the CVA comes into force.
[2] Company Rescue, ‘New Look to use CVA to Close 60 Stores’ (Company Rescue, March 7th, 2018) https://www.companyrescue.co.uk/guides-knowledge/news/new-look-to-use-cva-to-close-60-stores-4069/
[3] Company Rescue, ‘New Look to use CVA to Close 60 Stores’ (Company Rescue, March 7th, 2018) https://www.companyrescue.co.uk/guides-knowledge/news/new-look-to-use-cva-to-close-60-stores-4069/
[4] Ibid
[5] Lara Dolden, ‘The Death of the British High Street’ (Tech Round, August 5th, 2020) https://techround.co.uk/news/the-death-of-the-british-high-street/
[6] Sahar Nazir, ‘New Look on Edge as it seeks large landlords’ support on CVA Proposals (Retail Gazette, September 8th, 2020) https://www.retailgazette.co.uk/blog/2020/09/new-look-on-edge-as-it-seeks-large-landlords-support-on-cva-proposals/
[7] Ibid
[8] Sarah Nazir, ‘High Court to decide if New Look can enter Examinsership.’ (Retail Gazette, September 27th, 2020) https://www.retailgazette.co.uk/blog/2020/09/high-court-to-decide-if-new-look-can-enter-examinership/
[9] Ibid
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.