Debenhams: more high street woe stokes CVA row
Debenhams announced in April that it would cut the size of at least 30 stores to counter what CEO Sergio Bucher has called “exceptionally difficult times” on the UK high street. That clearly wasn’t enough, said Zoe Wood and Julia Kollewe in The Guardian. Shares in the department store group plummeted again on Tuesday after a third profit warning this year. They’ve now halved in value in 2018. Debenhams is one of a string of retailers, including its ailing rival House of Fraser, using a company voluntary arrangement (CVA) – a form of insolvency – to close outlets. Bucher said it would seek to negotiate rent reductions with landlords on 25 stores that are up for lease renewal in the next five years.
“New Look, Carpetright and Mothercare have already drawn the ire of landlords over what they see as the abuse of CVAS to dump onerous rent obligations,” said Alistair Osborne in The Times. But this “landlord victim complex” is “getting a bit much”. As Hugh Osmond, the co-founder of Pizza Express, points out, landlords are “one of the main causes of their own downfall” – especially in the southeast, where “upward-only rent reviews” have doubled fixed costs for retailers in a decade. The “net margins of your average retailer” can’t absorb this, says Osmond. “There is no moral or legal argument around this – it is just maths.” Lobbyists on both sides want a government review into the CVA controversy. But there is at least some good news for the sector. A winning combination of warm weather and the Royal wedding saw retail sales far outstrip expectations last month, with volumes jumping by 1.3%, said The Times. A sign, perhaps, that the economy is recovering from the sharp slowdown in the first quarter.