The current situation on the High Street doesn’t appear to be a positive one at the moment. With a number of companies downsizing or disappearing altogether (BHS). But does this mean the death of the High Street altogether?
As you would be aware, one of the best known department store’s in the UK, House of Fraser, has had it’s Company Voluntary Arrangement (CVA) approved. This will result in the closure of 31 of its stores. Resulting in the loss of 6,000 jobs. The situation may sound familiar, as it is very similar to the collapse of BHS. Who tried to persuade landlords to write off a fraction of their rent debts, also via a CVA. However, it appears that landlords are now becoming more reluctant to agreeing to rent cuts, especially if the business is going to go into administration anyway.
House of Fraser follows a long list of retailers that have or hoped to be rescued via a CVA; Retailers such as Mothercare, Selecta, New Look and Carpetright. The common issue with many of these retailers is failing to adapt to the new market. Subsequently, not growing rapidly or adhering to changing shopping habits, such as the shift to online.
Expensive High Street stores can be cut down, as long as the lease allows for early termination. If this can’t be done then the only way out is to surrender the lease, which can prove to be very expensive. The other option is to use a CVA, like House of Fraser have. The CVA allows the retailer to determine its lease obligations which can then help the company’s cashflow. Note that a CVA can be used for any type of business that has an income that is regular. Rent is one of the biggest costs to a retailer so it isn’t hard to see why a CVA is a popular option. Especially as renters don’t want empty buildings.
It will be interesting to see what will happen to the High Street in the upcoming months. But with the increase in online shopping and High Street rents being too high, the High Street is in for a tough slog. Especially as a recent report undertaken by Deloitte showed that the retail sector has seen the first rise in insolvencies in 5 years; with larger stores taking the hardest hit.