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Administration Across the Pond: Bankruptcies Roil British Retail

Although the U.K. government enabled all of the nation’s non-essential retail businesses to open back up on June 15, it appears apparel retailers across the pond aren’t having an easy go of getting back on their feet—with many succumbing to insolvency or still trying to configure go-forward payment plans with landlords.

U.K.-based fashion retailers AllSaints, New Look, T.M. Lewin, Monsoon, Accessorize and Quiz are among many businesses not only mired in negotiations with landlords, but also in danger of seeing stores close in the wake of the COVID-19 pandemic as they either enter administration, the equivalent of bankruptcy in the U.S., or consider a filing.

According to a Sky News report, AllSaints, which operates more than 250 stores globally and 40 in the U.K., is set to demand steep rent cuts from its landlords across the U.K. and U.S. via a company voluntary arrangement (CVA), which is a formal insolvency procedure designed for a business to settle debts by paying only a portion of the amount owed to creditors.

The report said “only a handful” of store closures are expected, but indicated that the AllSaints restructuring plan looks to extract “substantial financial concessions” from landlords.

New Look, which operates 500 stores in the U.K. and Ireland, has started negotiations with landlords to switch to revenue-based rents across its brick-and-mortar portfolio. The retailer did not pay its quarterly rent bill in March after asking landlords for a three-month rent holiday, and in April cancelled all orders with suppliers and pushed back payment terms indefinitely to help mitigate the pandemic’s impact.

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Revenue-based rents link occupancy bills to individual stores’ sales, and have become a feature of discussions between landlords and retailers, with department store House of Fraser already operating under the model.

If the revenue-based rent discussions prove unproductive, New Look is likely to consider strategic alternatives, including an insolvency process, in the coming months.

Advisors of SCP Private Equity, the firm that bought T.M. Lewin last month, reportedly told landlords that the men’s wear retailer would be put into “pre-pack” administration unless they agree on significant rent cuts, which would include the shutdown of most of its 66 stores. Pre-pack administration is an insolvency procedure in which a company arranges to sell all or some of its assets to a pre-determined buyer prior to appointing an administrator, or bankruptcy advisor, to facilitate the full sale. This allows the company to shed most liabilities when it formally files for administration.

Monsoon and Accessorize, two separate retailers with 230 stores that operate under one company umbrella, officially went into administration on June 9 as part of a pre-pack deal. Founder Peter Simon bought back the company through Adena Brands, of which he is a lead shareholder.

“Both Monsoon and Accessorize were trading well before the coronavirus pandemic, but the business simply could not withstand the financial impact of having to close all its U.K., franchise and joint venture stores for almost three months,” Simon said. “We will now try to save as many of our stores as possible, depending on the outcome of various discussions with landlords. I would like to thank landlords for the helpfulness and enormous forbearance they have shown so far, which has enabled us to get to this point.”

Up to 35 Monsoon and Accessorize stores are expected to close immediately, but it appears Adena only has plans to save 100 of the remaining locations as it seeks to renegotiate rents with landlords. When the COVID-19 pandemic forced stores to shutter across the U.K. in March, Monsoon Accessorize told landlords it would not pay rent across its portfolio for the next three months.

Monsoon and Accessorize are hoping to forge new rent agreements with landlords after emerging from administration.
Monsoon and Accessorize are hoping to forge new rent agreements with landlords after emerging from administration. High Level/Shutterstock

And Quiz, another U.K.-based fashion retailer, is closing 11 stores and placing its Kast Retail Limited subsidiary, which operates 82 of the company’s 250 stores, into administration. The retailer will eventually look to buy back some of the assets from Kast for £1.3 million ($1.63 million), so it can try to renegotiate better rents with landlords. The company is seeking turnover-based rent terms similar to what New Look is negotiating for.

“We continue to believe that stores, with appropriate property costs and flexible lease terms, can continue to be a relevant pillar in our omnichannel model and we will be seeking to re-open Quiz stores where we believe it is prudent and economic to do so,” Quiz CEO Tarak Ramzan told Reuters.

The renegotiations, on top of cancelled and deferred rent payments, don’t just illustrate apparel’s poor financial health in the U.K.; they also show that the landlords housing them have struggled mightily during the pandemic and can’t afford to hold off on payments much longer.

British real estate investment trust Intu Properties, which operates 17 shopping centers across the U.K., is in major financial limbo, reportedly lining up KPMG to handle a potential administration process. Intu Properties needs £12 million ($15.1 million) in funding to keep some of its U.K. shopping centers in operation during a potential administration process.

Intu, which carries a £4.6 billion ($5.9 billion) debt load, said it received just 29 percent of tenants payments due in the second quarter. But the company also had losses of over £2 billion ($2.51 billion) in 2019, which prevented it from getting access to the U.K. government’s COVID Corporate Finance Facility (CCFF), which offers a lifeline to large firms that can prove they were in sound financial health before the pandemic.

Another major U.K. shopping center landlord, Hammerson, has £2.8 billion ($3.52 billion) in net debt and said it received 37 percent of the rent it was owed in the quarter.

In April, the U.K. government implemented a temporary ban on landlords issuing statutory demands and petitioning courts to enforce orders over unpaid rent due to the pandemic, only allowing landlords to collect rent if they are owed 90 days of unpaid rent. Under normal conditions, a statutory rent issued by the landlord gives retailers 21 days to pay their rent obligations.

Both moratoriums are set to expire on June 30, unless they are extended. At that point, it’s very likely the demand for tenant payment will pick up, especially since it will have been three months since non-essential U.K. stores were mandated to close on March 23.

Like the U.S. fashion and department-store sectors, the U.K.’s high street has seen its fair share of casualties stemming from issues far before the pandemic spread, with Victoria’s Secret U.K. entering administration earlier in June, leaving nearly 800 employees and 25 stores at risk. Debenhams, Laura Ashley, Cath Kidston, Oasis and Warehouse all have filed for administration since March, with Laura Ashley permanently closing 70 of its 147 stores in the U.K. and the U.K. arm of Diane von Furstenberg, which has axed much of its stateside staff, also slipping into insolvency.

Debenhams has struck deals with landlords to keep 120 stores open, but the retailer has announced 20 permanent store closures since April, with 4,000 job cuts in the process. Its three most recent closures, announced this month, came after the retailer failed to reach a rent agreement with Intu.

Boohoo scoops up Oasis and Warehouse

Luckily for Oasis and Warehouse, British online fashion retailer Boohoo has agreed to buy the retailers’ e-commerce businesses for £5.25 million ($6.57 million) from Hilco Global, which bought the failing companies out of administration.

While the retailers closed their 90 combined stores and 437 concessions in other department stores during the pandemic, their online operations were not functioning either. Oasis and Warehouse customers have not been able to place orders online for a number of weeks. Boohoo said Oasis and Warehouse would be integrated into its online platform, strengthening its offering against British power e-tailer Asos.

Boohoo appears to be of the few apparel retailers performing well during the pandemic due to its appeal to stay-at-home shoppers and its lack of a physical presence and related liabilities. First-quarter sales rose by 45 percent to £367.8 million ($462.40 million), partly boosted by demand for athleisure items during lockdown. This is well ahead of the consensus of a 15 percent growth, according to Jefferies analysts.

The company has been on an acquisition spree in the past year, snapping up women’s fashion brands MissPap, Karen Millen and Coast. Additional acquired retailers under the Boohoo umbrella include PrettyLittleThing and Nasty Gal.

In May, Boohoo raised £198 million pounds ($248.5 million) from investors to take further advantage of acquisition opportunities as retailers struggle to recover from the pandemic.

“During unprecedented and challenging times the group has delivered a very strong trading and operational performance,” said John Lyttle, Boohoo’s group chief executive. “While there is a period of uncertainty within the markets in which we operate, the group is well positioned to continue making progress towards leading the fashion e-commerce market globally.”