New Look says it needs to start paying turnover-based rents as more customers buy more of their retail purchases online – and is launching a new CVA programme and a £40m recapitalisation in order to transform its business once more.
As of August 10, New Look has gradually reopened 459 of its 496 shops from Covid-19 lockdowns - but said in an update this week that store sales performance is still 38% down on the same time last year, as footfall continues to be low following the pandemic. Online sales have, at the same time, been strong. New Look chief executive Nigel Oddy said: “Current trading remains impacted by the decline in footfall seen right across the retail market, and with the pandemic ongoing and social distancing measures in place for the foreseeable future, it remains difficult to accurately forecast the sales recovery rate.”
Now the fast fashion retailer wants to renegotiate its store rents to a turnover-based model and needs the consent of its landlords to a fresh CVA (company voluntary agreement) in order to do so. It is also raising finance through a debt for equity swap that will cut current senior debt from £550m to £100m and reduce interest costs. It will also gain £40m in new capital to support its future plans.
“Given… the extent of our deferred obligations, future expected costs and the likely permanent structural shift in customer spend and behaviour from physical retail to online, we are seeking additional capital for the business and a recapitalisation of our balance sheet to ensure we are as well positioned as we can be going forward in the post-Covid 19 retail operating environment,” said Oddy. “Additionally, out of absolute necessity we are preparing to launch a CVA that would reset our rental cost base back to market rent through a turnover-based model that fairly reflects the future performance of the company and wider retail market.”
New Look already has backing from its banks and bondholders for the financial recapitalisation, said Oddy. But, he added: “This recapitalisation – which will enable us to deliver our long-term strategic plans and safeguard 12,000 jobs – can only be delivered if we secure the support of our landlords for our forthcoming CVA.”
The new money will enable New Look to invest further in omnichannel while selling clothes designed to have a broad appeal, as outlined at the time of its latest full-year results.
In March 2019 New Look appeared to have come to the end of its CVA programme, which saw it close 110 shops as it reduced its store estate to 491 UK shops and 27 in Ireland. But now it is restarting a transformation programme as the shift online is accelerated by Covid-19 and associated lockdowns. As recently as February 2020, the retailer believed it was well placed to focus on selling more profitably. That has changed once more following the pandemic.
New Look’s announcement comes amid reports that fellow high street fashion retailer River Island is planning to cut 350 head office and store jobs from a total workforce of 7,900, having already cut 250 earlier this year. Last week M&Co announced the loss of almost 400 jobs and 47 shop closures through a pre-pack administration and earlier this week Debenhams confirmed it was cutting 2,500 jobs.