Before we talk about CVA for high-street retailers, let’s understand the basics. Under UK insolvency law, a company facing insolvency can enter into a CVA with majority of its creditors. Such kind of arrangement allows the company to tackle its debt problems by repaying all or part of the debts over a period of time. The process of CVA is a thing for another post, but 75% of the voting creditors must agree to it. For a fact, high street retailers haven’t had the best run in recent years, with companies like Carpetright and Toys R Us entering into insolvency procedures. So, can CVA work as an effective option for large store-based retailers? Find more below.
Understanding high-street casualties
Large retailers have been turning to formal insolvency for a number of reasons, including
- Increased rent costs for larger stores
- Increased business rates
- The domino effect of Brexit
- Customers opting for online shopping
- Reduce footfall as customers refuse to travel to stores beyond a region.
Unlike online retailers, who just deal with one massive storage unit and office, high-street retailers have to deal with many, and not each store operates as profitably as expected.
When is CVA appropriate for a company?
Leading UK insolvency practitioners like Business Rescue Expert don’t typically recommend CVA for a company dealing with a financial situation. However, under certain circumstances, this can be useful. These include situations like –
- The company just has historic debts and is capable of handling regular operations and expenses.
- The company has been undergoing or has undergone material change in its trading practices, which may ensure profits.
- Or to wind up a company to dissolution without facing the liquidation consequences.
The third aspect is hardly considered, because the costs increase significantly.
Will CVA work for high-street retailers?
If you just consider the current statistics, high-street retailers have not shown massive growth in recent couple of years. This simply means that they are not dealing with historic debts alone. This brings us to the second situation, which is material change in the way of trading. However, for high-street retailers, things are really tough, mainly because of online shopping. There are certain aspects that may help like
- Narrowing down the operations to a niche market, which allows better customer reach
- Selling products so customers want the same
- Improve the experience of shoppers, so that customers enjoy coming to the store.
- Make the most of social media and online marketing to turn customers into brand fans.
Toys R Us CVA failed because they didn’t do much to change the nature of their business. If you are a high-street retailer considering CVA, get the right advice and consider all the possible options before taking the next step.