As Monsoon seeks to join the ranks of stores slashing rents through a company voluntary agreement, ParcelHero says CVAs are simply speeding up the demise of High Street shopping and will impact on pension and investment schemes.
The fashion chain Monsoon is the latest store to seek to weather the retail storm by convincing its creditor landlords to agree to a company voluntary agreement (CVA). But the e-commerce home delivery expert ParcelHero says CVAs are at best a temporary bandage for store chains, and at worst will hasten the demise of the High Street and reduce the value of many pensions, many of which are partially invested in commercial property markets.
Says ParcelHero’s head of consumer research, David Jinks MILT: ‘Though Monsoon is largely looking to significantly reduce rents, several other retailers, from Debenhams and House of Fraser to Carpetright and Mothercare have used CVAs to plan the wholesale closure of many stores. Nearly 1,000 stores have closed under CVA agreements in the past two years alone. Just this month Philip Green’s Arcadia Group has also agreed a CVA which includes the closure of 23 UK stores. The escalating closure of major High Street stores will simply drive shoppers away from town centres in even greater numbers.'
Explains David: ‘CVAs should be a last resort, not the standard retail business practice they are fast becoming. Yes, they give chains the chance to slash rents and ditch poor performing stores; but closures are becoming unsustainable. Debenhams is axing 22 stores and House of Fraser 31 stores under CVAs, while Carpetright has already used its CVA to ditch around 92 stores, Mothercare 50 and Homebase 92 Not only is the trust between landlords and retailers being destroyed; but many of our pensions are invested by their administrators into retail property. Institutional investors such as pension funds and insurance companies are large investors – both directly and indirectly – in commercial property markets.'
Says David: ‘Property landlords have to choose between either accepting a huge cut in rental income, or losing the tenant altogether and having large properties standing empty. This diminishes the market for new retail developments. Many large pension schemes may typically have around 8% of their funds invested in commercial property developments and management; but with returns on those investments falling, pensions are being impacted and some schemes are seeking to reduce their exposure to the sector. And many of us may have our pension pot invested in a specialist property pension fund. As an example, the makeup of one well known fund includes 9.2% invested in shopping centres and around 9.5% in standard retail stores. And Britain’s High Street banks have around 8% of their loans tied to commercial properties.’
Adds David: ‘BHS could be said to have started the current CVA "trend", forcing its creditors into accepting far lower rents and even rent ‘holidays’ for some stores; we all know where that ended for BHS. Likewise, Jamie’s Italian also negotiated a CVA with its creditors in February, but collapsed entirely a few months later. CVAs don’t remedy the fundamental faults at the heart of a brand; they are a desperate measure that will simply mean property investors move into alternative markets, and our High Streets collapse under the weight of closures and terminal underinvestment.’
David concludes: ‘Retailers with a portfolio of stores should instead seek to make the most of these great assets, ensuring store events are an "event" and adopting a multichannel approach to retail; with customers buying online and popping into their local stores to pick up items and return them. The increased footfall encouraged by BOPUS – Buy Online, Pick Up in Store – will result in increased sales for many of our, still much-loved, town centre stores.’