CVAs – here today, here tomorrow
Arcadia Group chairman, Philip Green is right. As he said on the BBC on June 13, ‘the market place has changed forever.’ And how retailers cope with that fact is seeing once unacceptable practices become not only mainstream but broadly respectable.
The bête noire of landlords up and down the UK is the CVA or Company Voluntary Agreement. It’s a neat euphemism for a defensive strategy that enables retailers to escape some of their debts, giving them breathing space to pull some kind of workable business from the flames before the whole thing turns to ashes, or the liquidators suck up what remains of the cash.
What CVAs generally do, as Arcadia knows, is enable retailers to Big Bang the plans that they could never pull off in the ordinary course of business. Blame the CEO, blame trading, blame operations, blame who you like, but it takes a real force of will to change a business without the pressure of extreme external force, usually a collapse in trading. How many retailers are there in the UK praying for the chance to CVA their way to the sunlit uplands of fewer stores, growing online sales and complete channel integration around the needs of the customer?
What we must now all accept is, as Green and others are saying, UK retail is going through a correction, or perhaps even a complete reinvention, and clearly needs not only CVAs but other instruments that will give it time to reposition.
Trouble is, what happens to all that retail property that is now vacant? Where the stores are small, there is usually someone to fill the space; retailers like Lidl, Aldi and IKEA that are moving into the High Street are perfect candidates, but they’re unlikely to be interested in some of these larger empty properties.
One suggestion, and also an idea for the future of the department store, is that these large spaces are filled with pop-ups, a concept that enables the owner to negotiate lower rents, shorter leases, and generally more flexibility in terms of layout. However, if you fill the High Street with pop-ups, that hardly accounts for total existing retail space, and it appears that nobody wants to really think about what the High Street might look like where retailers are occupying less space overall.
We hear people talk about increasing the amount of residential accommodation in the High Street, but I’ve not seen any examples of this other than in brand-new retail developments, and then mostly in the US.
So CVAs are here to stay, and clearly they give retailers another option which I suppose is positive. But it in no way addresses the long-term threats to retail. The list of failures or near failures in 2019 so far according to the Centre for Retail Research * does not make for pretty reading, even for those retailers that have successfully used a CVA to get back on their feet.
Realbuzz, Rococo Chocolates, Skandium, Debenhams, Select, Pretty Green, The Bottle Shop, Office Outlet, Superfi, Better Bathrooms, L K Bennett, Bennetts Department Store, tReds, Wine Direct, Monsoon Accessorize, OddBins and Wine Cellars, Patisserie Valerie, Miss Shoes, Chapelle Jewellery & Watches, Wild and Gorgeous, Hardy Amies, Steamer Trading.
But before anyone thinks that the CVA is a panacea, it is nothing more than a lifeline. Those retailers that survive liquidation still need to look long and hard at themselves and answer existential questions – who are we, what is our purpose, how are we special, who wants what we sell and how do customers want to buy? Any retailer, good and bad, asking these questions today is unlikely to be happy with the answers they get back.