• Insurance cover provides suppliers with protection in the period between an order being accepted and payment being made.
  • New Look has had its cover withdrawn by a number of major credit insurers.
  • The retailer may have to pay for product upfront or accept more onerous payment terms.
The withdrawal of insurance cover will be a blow for the struggling fashion retailer

The withdrawal of insurance cover will be a blow for the struggling fashion retailer

UK fashion retailer New Look may be forced to pay for product shipments upfront or accept more onerous payment terms following the withdrawal of credit insurance to many of its suppliers – in a move that will spark fresh concerns over its finances.

A number of major credit insurers, including Euler Hermes, are understood to be refusing to cover any new shipments to the retail group amid fears of a sales slump and controversy surrounding an accounting scandal at South African retail giant Steinhoff. One of Steinhoff's largest shareholders, Christo Wiese, is also the largest shareholder in New Look owner Brait.

The development, reported by The Sunday Times, is a blow for the struggling fashion retailer, which has been dealing with falling sales and debts of more than GBP1bn (US$1.35bn).

In November, the value retailer swung to a half-year loss amid what it called "another tough period of trading."

For the 26 weeks ended 23 September, the company's losses reached GBP72.7m (US$95.6m), compared to earnings of GBP0.9m last year. Underlying operating loss totalled GBP10.4m, compared to underlying operating profit of GBP59.3m in the year-ago period.

New Look brand like-for-like sales were down 8.6% in the quarter, while UK like-for-like sales dropped 8.4%. Net sales also slipped, falling 4.5% to GBP686m from GBP718.1m last year.

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The retail group remains under pressure from competitors like Asos, Boohoo and Primark.

While some of New Look's insurers are said to be providing "residual" cover to their clients for existing orders, the move will likely weigh further on the retailer. The withdrawal of credit insurance was a contributing factor in the demise of high street stores BHS and Woolworths.

The cover is seen as standard in the retail clothing industry and provides suppliers with protection in the period between an order being accepted and payment being made in case the retailer cannot pay its bills. If an insurer refuses cover then suppliers often demand upfront payment, placing further pressure on the retailer's working capital.

Former New Look executive chairman, Alistair McGeorge, returned to the retailer in November to spearhead a turnaround. He has vowed to deliver stability to the company and get the business back to basics by reconnecting with the customer and recovering the brand's broad appeal. He is expected to give an update on the strategy early next month alongside the latest sales update.

Both New Look and Euler Hermes declined to comment when contacted by just-style.

The news comes just days after Debenhams issued a profit warning and House of Fraser called on its landlords to reduce its rent bills. Analysts, meanwhile, are expecting Marks & Spencer to report a substantial fall in fashion sales this week.

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