New Look, the troubled UK retailer, has unveiled its proposed Company Voluntary Arrangement (CVA), which aims to switch the rent structure of the majority of its stores to a turnover model to align with current market conditions. However, this proposal may pose challenges for landlords as the rents will be significantly reduced compared to current levels.

The company has confirmed that it will be launching the CVA after making enhancements and negotiating with its landlords and unsecured creditors, in the hope of moving 402 of its UK stores to a turnover-based rent system. Additionally, New Look has secured the necessary approvals from its lenders and noteholders for a debt-for-equity conversion, as well as access to £40 million in new funding.

New Look CEO Nigel Oddy believes that the CVA is necessary to complete the company’s financial restructuring and ensure the future of the business and its employees. Oddy acknowledges that the COVID-19 pandemic has accelerated the shift towards online shopping and significantly impacted the retail industry.

So, what does the proposed rent structure entail? After consulting property agents and analyzing its store portfolio, New Look plans to categorize leases, with 402 stores having a turnover percentage of up to 12%, and the remaining 68 stores transitioning to zero rent. Although this news may not be well-received by landlords, the proposal includes improved flexibility for them, allowing them to terminate leases if they find alternative tenants on better terms. On the other hand, New Look will not have the right to exit the re-based stores until the end of the 36-month CVA, and only if the store is underperforming.

In response to landlord feedback, the proposal ensures that there will be no changes to service charges, and it includes the settlement of any outstanding service charge arrears across all store categories. Minimum rents for the second year will be 85% of the rent paid in the first year, and in the third year, they will be 85% of the rent paid in the second year. After the three-year period, the rents will reset to the higher of the CVA turnover rent or market rent.

The CVA meeting is scheduled for September 15th, and approval requires at least 75% of unsecured creditor votes in favor. Daniel Butters and Rob Fishman of Deloitte LLP have been appointed as Nominees to the CVA. Butters assures that no stores will close on the first day, and assures employees and suppliers that they will be paid in full and on time.

This proposal showcases New Look’s ongoing commitment to adapt to the challenging retail environment and secure its survival amidst evolving customer behaviors and increased online shopping. By implementing deep rent cuts or even zero rents for its stores, the company aims to gain the necessary support from landlords and creditors to ensure its future and maintain a presence on the UK high street.

Useful links:
New Look Group Official Website
Retail Gazette – Industry News and Insights