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June 21, 2019

Monsoon Accessorize latest to launch CVA proposal

UK-based fashion and accessories retailer Monsoon Accessorize has become the latest to launch a company voluntary agreement (CVA) to restructure its business.

UK-based fashion and accessories retailer Monsoon Accessorize has become the latest to launch a company voluntary agreement (CVA) to restructure its business.

Under the proposals the company is seeking rent reductions at just over half of its 258 UK store estate. It says current rent and occupancy costs are unaffordable, given “fundamental changes” in the retail sector, and that it needs to reduce the costs of its store portfolios “to ensure their ongoing viability. However, “no store closures are currently planned within these proposals.”

As part of the deal, landlords have been offered a share in future profits worth up to GBP10m (US$12.7m) annually if the retailer can “trade profitably and above forecast” in future years.

“Trading for the group has been difficult for some time, as it has been for much of the retail industry,” explains Paul Allen, chief executive of Monsoon Accessorize.

“In early 2016, we implemented a plan which initially delivered positive like-for-like store sales. However, in the two years that followed, overall like-for-like sales have decreased as market conditions declined.

“The proposed CVA is designed to reduce store operating costs and to bring the costs more in line with market rents. Through implementing the CVA and the shareholder credit facility, the group will be able to invest in the business, the brands, and in growing profitable sales channels – both in-stores and online.”

Pippa Stephens, retail analyst at leading data and analytics company GlobalData, believes “the failure of the retailer’s 2016 strategic overhaul brings into doubt the future viability of its brands and their ability to regain relevance among shoppers.”

She continues: “Monsoon’s downfall has been its limited brand appeal, high prices and increased competition from newly emerged players such as Sosander, Mint Velvet and Hush – making customer acquisition and driving loyalty a challenge.

“However, its sister brand Accessorize has potential to win back shoppers, as long as it introduces more fashion forward ranges and increases its social media presence to attract younger consumers and compete with competitors such as Primark.

“The retailer previously put its CVA plans on hold to await the outcome of Arcadia’s CVA vote last week. The evident backlash from Arcadia’s landlords has clearly influenced Monsoon Accessorize’s decision to offer its landlords up to GBP10m annually if it can ‘trade profitably and above forecast in future years’, as it becomes increasingly apparent that a green-light for CVAs is not always guaranteed.”

A CVA is an insolvency procedure that allows a company to reach a voluntary agreement with its business creditors to repay its debts to avoid going bust. But they have been criticised by landlords who claim retailers are misusing them to cut costs.

One of the most high profile cases has been that of Arcadia Group, owner of the Topshop, Topman, Miss Selfridge, Burton and Dorothy Perkins chains, which last week avoided falling into administration after its creditors approved all seven of its CVAs.

However the retailer was forced to revise its request for a 30%-70% cut in rents after a battle with landlords. Rent cuts were instead agreed at between 25%-50%, with the group’s majority shareholder, Sir Green’s wife, Lady Tina Green, investing a further GBP50m in the group.

And it is now understood that several American property companies have filed a legal challenge against Arcadia over its use of the CVA process. In the US the company plans to restructure its operations, with the potential closure of all 11 Topshop Topman stores in America. 

Most recently, creditors of high street fashion retailer Genus UK Ltd, trading as Select, have approved its CVA proposals.

And while UK department store retailer Debenhams had its CVA proposals approved last month, it has since received a challenge to the plans from former shareholders including Sports Direct.

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