British retailer New Look has launched its CVA proposal which looks to reset the majority of its UK stores to a turnover rent model.
Under the proposed CVA, 402 leases would be set at a turnover percentage of up to 12 percent while the remaining 68 stores would move to nil rent. In return, landlords would get enhanced break clauses, which means they will have the opportunity to exit the lease if they believe they can find an alternative tenant on improved terms.
New Look, on the other hand, will have no additional rights to exit the re-based stores until the end of the CVA - or after 36 months - and even then only if the store is underperforming.
The CVA will be voted on at a creditor meeting on 15 September and must receive at least 75 percent of votes in favour to go ahead.
CEO Nigel Oddy said the CVA was being launched “out of absolute necessity” to “secure the future of New Look and our employees.” The company had been in discussion with its landlords about a move to turnover-based rents since May.
“Covid-19 has changed the retail environment beyond recognition, accelerating the permanent structural shift in customer spend and behaviour from physical retail to online, which we have seen in recent trading,” Oddy said. “Despite this, we still fundamentally believe the physical store has a significant part to play in the overall retail market and our omnichannel strategy. We remain committed to the high street and serving our customers through our portfolio of local, conveniently-located stores in towns across the UK.
“However, the magnitude and speed of the shift in consumer behaviour and confidence nationwide requires a change in the way leases are structured in order to manage uncertainty so that stakeholders share both risk and upside, and to ensure continued business viability.”
It comes as a growing number of British fashion companies launch CVAs in an effort to mitigate the financial impact of Covid-19. In recent months, Arcadia, Hotter Shoes and AllSaints have all looked to change rent terms with landlords.
Oddy continued: “The proposal we have launched today would relieve the financial pressure on New Look as we navigate the post-Covid landscape, whilst also providing our landlords with greater flexibility over their rental arrangements and ensuring closer alignment of interests with regards to sales recovery.
“Together, the proposed CVA and the financial recapitalisation will provide the foundations for us to deliver our long-term strategic plans, safeguard over 11,200 jobs, and continue to build on the brand status New Look has built over the past 50 years as one of the UK’s leading womenswear retailers.”
Photo credit: New Look, Facebook