The crisis on the high street is set to push the number of chain-store closures above 1,000 as more retailers turn to a controversial insolvency procedure to avoid collapse.
Debenhams, Topshop owner Arcadia Group, Paperchase and Monsoon are among those either planning or expected to use company voluntary arrangements to overhaul their businesses, with the combined loss of more than 150 shops.
That adds to more than 900 store closures triggered in the past two years at chains including HMV, House of Fraser and Toys R Us, according to the Local Data Company
The UK retail sector has come under increasing cost pressures, as business rates and wages have risen. At the same time, footfall decreased by 2.1 per cent in 2018, according to data from Springboard, as consumers turn increasingly to online shopping.
CVAs allow insolvent companies to agree new repayment plans with their creditors, including landlords, and typically involve rent reductions of 20 to 75 per cent.
The use of these agreements has rapidly increased in the past two years — only one took place in 2008, compared with 10 last year, according to PwC — sparking frustration from landlords and property funds forced to cut their rents.
Since January four retailers and restaurant groups have initiated CVAs, with at least five more in talks to do so, putting 2019 on track to be a record year.
Landlords and property groups argue that several retailers have opted for CVAs in bad faith, motivated by a desire to reduce rent rates they signed up to years ago. They highlighted gaps in case law that led to a lack of clarity on when CVAs should be used.
“CVAs are being used by some retailers to unstick and leave a location without any regard to the physical fabric of a place,” said Ed Cooke, chief executive of Revo, which represents commercial property investors, landlords and retailers.
Many funds and advisers blame a high level of private equity ownership in the sector for the recent spate of retail insolvencies.
Debenhams, which filed for administration this month, was previously owned by private equity firms CVC, TPG and lender Merrill Lynch. They left the business with long property leases and debt close to £2bn — 2,000 per cent higher than when they took control of the company.
Recommended
Toys R Us, owned by KKR and Bain Capital, failed last year, leading to a loss of about 3,000 jobs in the UK.
“The link between retail failure and private equity ownership is proven,” said Stephen Springham, head of retail research at Knight Frank. “Retailers need to be run as retailers, by retailers, not as cash cows by financiers.”
Mr Springham pointed to aggressive expansion plans adopted by private equity firms, which loaded retailers with debt and extracted cash before selling them on.
“They’re less interested in the long-term health and survival of a retailer,” he said.
Closures stemming from retail CVAs last year were most prevalent in London, the south-east and the east of England, according to the LDC data.
Jamie Oliver, the celebrity chef whose restaurant chain, Jamie’s Italian, filed for a CVA last year at the time described a “perfect storm” of “rents, rates, the high street declining, food costs, Brexit [and an] increase in the minimum wage”.
