New Look reveals detailed CVA plan to move shops to turnover-based rents

New Look has unveiled its Company Voluntary Arrangement proposal following negotiations with landlords, in a plan aimed at moving hundreds of shops to a turnover-linked rent model.

Earlier this month the fashion retailer, which has been hurt by the coronavirus crisis, said it was talking to banks and bondholders about recapitalising the business. It today announced that it had received the support of 80% of its bondholders and 100% of its banks for the recapitalisation, conditional on a CVA which has been launched today.

A CVA is restructure method which companies typically use to axe stores or reduce rent payments. As part of its CVA, New Look wants to move most of its stores to a turnover-based rent model, which is a way of allowing tenants to pay rent based on how sales perform.

New Look had to shut stores for the Covid-19 lockdown and could only reopen them from June 15. Even before the outbreak it was grappling with headwinds on the High Street, such as high business rates.

Chief executive Nigel Oddy today said: “Covid-19 has changed the retail environment beyond recognition, accelerating the permanent structural shift in customer spend and behaviour from physical retail to online, which we have seen in recent trading. Despite this, we still fundamentally believe the physical store has a significant part to play in the overall retail market and our omnichannel strategy.”

But he added: “However, the magnitude and speed of the shift in consumer behaviour and confidence nationwide requires a change in the way leases are structured in order to manage uncertainty so that stakeholders share both risk and upside, and to ensure continued business viability.”

New Look today set out an overview of the CVA proposals. It has made a number of pleas, including resetting the majority (over 400) of New Look’s stores, to a turnover rent basis that aligns future performance and reflects the wider retail market.

The proposal includes enhanced landlord breaks for all stores, providing landlords with the opportunity to exit the lease if they believe they can identify an alternative tenant on improved terms. New Look said this offers landlords maximum flexibility.

The CVA meeting date is scheduled for September 15 and approval requires a vote in favour by at least 75% of unsecured creditor votes.