The South African-owner of UK footwear chain Office has confirmed it has entered into debt restructuring talks with lenders to explore options for the business.
Truworths International, which acquired the chain in 2015, says Office has around GBP45m (US$56m) worth of debt, a significant portion of which will be settled through a lump sum payment maturing next December.
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According to Reuters, Office has been significantly affected by the collapse of department store chain House of Fraser where it had several concessions.
The group has now appointed Alvarez & Marsal Europe LLP and Deloitte LLP, respectively, as their professional advisors.
“In light of the depressed retail trading environment currently being experienced in the UK, Office has entered into discussions with the relevant lenders regarding potential debt restructuring options,” Truworths said in a statement.
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“Though it is expected that the UK and Office will continue to experience a difficult trading environment in the medium term, the company’s management and the board of directors believe that the discussions with the lenders and any resultant debt restructuring will not have a material impact on the group’s operations in South Africa and the rest of Africa.”
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By GlobalDataKate Ormrod, lead analyst at GlobalData, believes Office must look to bolster its online presence and cut back its retail store estate. “Office has been outshone by both multichannel and online rivals in the form of JD Sports and ASOS, with range overlap the primary reason for the specialist’s difficulties, reducing its top-of-mind appeal among its core youth customer base and resulting in increased discounting. With Footasylum now under JD Sports’ wing, the pressure will only grow.
“Office has also struggled as leading sports footwear brands such as NIKE and adidas refocused on their retail operations and scaled back third-party distribution on key lines. This has left its own brand offer exposed – with a need to better justify prices via investment in quality and design. With online already accounting for 33% of its global retail sales, and the channel not yet fully exploited, a leaner store estate is a must to drive its recovery.”
Turon Miah, principal associate at insolvency firm Gowling WLG adds: “Speculation is rife that Office will propose a CVA if it cannot agree terms for restructuring its debts with its lenders. Office trades from around 100 stores in the UK and is facing the same pressures that confronted other retailers, namely high rents, business rate increases, decreased footfall and changing consumer trends. The bad debt Office incurred of GBP700,000 following House of Fraser entering into Administration 11 months ago will have added to the pressure but will be nominal on turnover of GBP285.5m in the year to July 2018. If the Office CVA follows other retailers and is a Landlord CVA then it is only the landlords that will see write downs whilst al other creditors and suppliers should expect to be paid in full. The changing landscape of retail means that only the fittest that is those that not only adapt to trends but set trends will succeed.”
