British high-street retailer New Look has gone to landlords with its hat in hand.
Under pressure amid the pandemic, the fashion chain formulated a restructuring that seeks to pay rent based on sales and calls for zero rent at 68 stores, a move, it claims, that will preserve 11,200 jobs.
The retailer secured a 440 million pound ($580.6 million) debt for equity swap and 40 million pounds ($52.8 million) in new financing to help it continue operations as a going-concern following the coronavirus outbreak in the U.K.
The idea behind a company voluntary agreement is to let firms settle their debts with creditors, including landlords, without entering into administration, the equivalent of bankruptcy in the U.S. The proposal marks New Look’s second financial restructuring plan in a little over a year, with its previous reorg completed in May 2019.
New Look is calling for a vote on the plan from creditors, including landlords, on Sept. 15, and must garner support from 75 percent of stakeholders to get the plan approved.
The plan New Look put forth would have 402 stores shift their lease structure from monthly fixed amounts to a percentage of sales in calculating the new rent obligations over a three-year period. Media reports said the percentage of sales has been set at 12 percent. In addition, the plan is seeking no rent payments for 68 location through the end of those lease agreements.
“COVID-19 has changed the retail environment beyond recognition, accelerating the permanent structural shift in customer spend and behavior from physical retail to online, which we have seen in recent trading,” New Look CEO Nigel Oddy told U.K.’s Shropshire Star. “However, the magnitude and speed of the shift in consumer behavior and confidence nationwide requires a change in the way leases are structured in order to manage uncertainty so that stakeholders share both risk and upside, and to ensure continued business viability.”
Oddy described the move as an “absolute necessity” that will help “relieve financial pressure” on the company after Covid-19 derailed sales.
New Look isn’t the only one seeking to shift rent obligations from fixed to a percentage of sales. Last Thursday, Frasers Group disclosed preliminary results for the year ended April 26, and said it too is pushing for rents to change to sales-based agreements. And the group said it isn’t ruling out store closures due to rent disputes with landlords. Others, too, are looking for rent relief as the seismic shifts in retail topple many into administration.