As New Look prepares for a Sept. 15 vote on a company voluntary arrangement (CVA) proposal that will determine its future, new signals have emerged that a major British retail player is looking to make a play for the fashion chain if its landlord deal falls through.
Boohoo, which already acquired Oasis and Warehouse after the businesses went under earlier this summer and bought out fashion brands Karen Millen, Coast and MissPap in the prior year’s span, would reportedly seek to purchase New Look if the CVA proposal fell through, according to The Sunday Times.
Similar to the Oasis and Warehouse deal, in which all the companies’ stores were shuttered, a Boohoo-led purchase would likely entail the closure of New Look’s 496 locations, which are expected to be liquidated anyway if 75 percent of New Look’s landlords and other unsecured creditors don’t approve the CVA.
Boohoo has neither confirmed nor denied the news, with a spokesperson telling Drapers: “The group has been acquisitive over recent years and now operates under nine different brands. We will continue to develop our multi-brand online strategy and review opportunities as they arise. We do not comment on market speculation and would communicate through the London Stock Exchange’s Regulatory News Service if there was anything to report on the acquisition front.”
The CVA proposal, which serves as a formal insolvency procedure designed for a business to settle debts by paying a portion of the amount owed to creditors, would enable New Look to rebase the leasehold obligations of 402 stores to a revenue-based rent model. New Look is also asking for a three-year rent holiday on 68 stores through the end of the lease agreements.
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These rents would link occupancy bills to individual stores’ sales, and are proposed to be paid at up to 12 percent of store sales. The move to turnover-based rents is one many U.K.-based retailers have clamored for in the wake of the Covid-19 pandemic, which prevented many of these retailers from paying rent when revenue from temporarily closed stores dried up.
Eighty percent of the stores listed in the CVA have a break clause coming up within three years and the company could close stores at the end of that period if sales have not recovered to 85 percent of pre-Covid levels.
“We have been in discussions with our landlords regarding a required move to turnover-based rents since May,” New Look CEO Nigel Oddy said in a statement when the company unveiled its CVA in August. “They have given us valuable and constructive feedback, and our CVA proposal recognizes this in a number of material changes we have made since our initial proposal.”
Like New Look, Frasers Group, which owns U.K. department store House of Fraser, is pushing for rents to change to sales-based agreements from traditional fixed amounts. While the company already closed five House of Fraser stores, leaving 48 in operation, it has not ruled out more closures.
Many of the nation’s biggest apparel retailers already have fallen into administration, which is the U.K.’s equivalent to a Chapter 11 bankruptcy filing in the U.S., throughout the year due to the decline in overall sales led by the pandemic.
New Look had considered a sale of the business when it secured a 440 million pound ($580.6 million) debt-for-equity swap and 40 million pounds ($52.8 million) in new financing in August, with its financial advisor initiating a process to solicit potential interest in the group. But while some parties expressed an interest in certain assets, no bids were received for the share capital of New Look by the first-round deadline of Sept. 8.
Initial reports indicate that the CVA proposal is unlikely to go through, as approximately 10 landlords, including several big shopping center owners, were reported by The Mail on Sunday as already having rebuffed the plan ahead of the official vote.
The rejections come after The British Property Federation, which represents property owners and landlords, criticized New Look for inaccuracies in its CVA proposal.
“While New Look and Deloitte (which is overseeing the insolvency process) engaged with us and this resulted in some changes to the proposal, this still fails to meet our best practice standards for CVAs and contains terms that property owners will object to,” said British Property Federation CEO Melanie Leech. “CVAs should not be about permanently ripping up leases—they are supposed to be a temporary measure, as part of a wider rescue plan, to get a business back onto its feet.”
The first time New Look launched a CVA was in March 2018, when it had to permanently close 60 stores and scrap 980 jobs.