12th March 2018
Have property costs, business rates and changing consumer habits created a perfect storm for New Look? by Matthew Valentine
Fashion retailer New Look is planning to close 60 stores – putting nearly 1,000 staff at risk of redundancy – as part of a plan to improve company performance and gain approval from creditors for a Company Voluntary Agreement (CVA).
New Look also proposes to negotiate reduced rental costs and revised lease terms at 393 stores. The retailer currently has a total of 593 stores, with 15,300 employees. Landmark stores including branches on London’s Oxford Street are included in the closures plan.
“Given our challenged trading performance and over-rented UK store estate, we are having to take tough but necessary actions to reduce our fixed cost base and restore long-term profitability,” says New Look executive chairman Alistair McGeorge.
“We have held constructive discussions with our key landlords and strategic partners and will now seek creditor approval on our CVA proposal. A priority for us is to keep all potentially affected colleagues informed during this difficult time.”
But the drastic action may not be enough, according to analytics company GlobalData, which describes the retailer’s store portfolio as a ‘huge encumbrance.’
‘‘With a loss of brand appeal and growing irrelevance among its core UK shopper base, New Look… has earmarked 60 stores for potential closure, including its two flagship stores on Oxford Street,” says GlobalData retail analyst Charlotte Pearce – who says that further rationalisation is needed to keep New Look relevant.
“The inclusion of selected standalone menswear stores in the sites identified for closure indicates yet another unsuccessful strategy for the retailer. While the closure of stores will lead to market share loss in the short term, it is a long awaited and necessary move,” adds Pearce, who says New Look is in danger of slipping out of the top 15 UK clothing retailers this year.
“The retailer’s plan to close just c.10% of its UK store estate is not enough and New Look must continue to rationalise its remaining oversized store network given it is a huge encumbrance... A leaner store estate will improve space productivity, increase profit per store and provide a more consistent brand image, which is much needed for the retailer’s survival,” adds Pearce.
Government changes to retail business rates may have had a substantial impact on New Look, according to property group Colliers International. New Look's stores in Banbury, Fitzrovia, Leicester and Oxford Street saw rises of 87%, 86%, 79% and 72% respectively, according to Colliers International.
Meanwhile stores which should have seen reductions in business rates have suffered from a policy of phasing in reduced payments. The New Look stores in Stockport and Bolton, for example, which should have seen reductions in liability of 54% and 50% found this translated to a reduction of 3.5% and 3.4% in year one. Both stores have been earmarked for closure.
"The government decision to delay the business rates revaluation to 2017 and to introduce the policy of transition continues to impact on UK retailers, either by giving massive rises in some areas and little relief in others,” says Colliers International head of rating John Webber.
“By delaying businesses rates reaching their true levels, retailers with stores in the less attractive areas have been forced to pay for the better ones for far too long. New Look has many internal and market pressures with competition from the internet and a fall in customer footfall into its stores. High costs in running stores such as rents and business rates don't help,” adds Webber. “I do wonder how many companies need to go down before the Government takes some proper action and considers proper business rates reform.”
Business advisory group Deloitte has been appointed as nominee for the proposed CVA. Partner Daniel Butters says: “The retail trading environment in the UK remains extremely challenging, driven by weaker consumer confidence, the implications of Brexit and competition from online channels.
“New Look is an iconic brand on the high street and the CVA will provide a stable platform upon which Management’s turnaround plan can be delivered. We have fully engaged with the British Property Federation and its members and their views are reflected in what we believe is a fair proposal to restructure the property obligations of the Company.”
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