Today, Carpetright plans to announce a proposal to address its legacy property issues and reduce the size of its UK property estate and rental cost base by the implementation of a company voluntary arrangement (CVA).
A review of the retailer’s property portfolio has identified 205 sites in the UK that are underperforming and/or on unfavourable lease terms, or, in certain cases, not expected to have significant strategic value to the company.
Of these, 92 have been identified for closure in the short term under the CVA proposal, with the balance of 113 sites being subject to a reduction in rental costs and revised lease terms.
The stores identified for closure are: Ayr, Ballymena, Bangor (NI), Barnsley, Beckton, Belfast (Newtownabbey), Bicester, Birmingham Stechford, Blackwood, Bodmin, Borehamwood, Burgess Hill, Burnley, Bury, Caerphilly, Catford, Coleraine, Derry/Londonderry, Dudley, East Grinstead, Edinburgh (Leith), Exeter, Exmouth, Falkirk, Folkestone, Fraserburgh, Glasgow (Great Western Road), Glasgow (Parkhead Forge), Gloucester, Great Yarmouth, Greenock, Guildford, Hamilton (Carpetright), Hamilton (Sleepright), Harrogate, Hayes, Hitchin, Honiton, Huddersfield, Inverness (Merkinch), Kidderminster, Kings Lynn, Launceston, Leeds (Birstall), Leeds (Hunslet), Lewes, Lichfield, Lincoln, Livingston, Llanelli, Luton, Maidenhead, Neath, Oldham, Putney, Reading (Oxford Road), Redhill, Renfrew, Scarborough, Scunthorpe, Sheffield (Meadowhall), South Shields, St Austell, St Helens, Stafford, Stanmore, Stratford-upon-Avon, Streatham Common, Strood, Sunderland (Castletown), Telford, Thanet, Thornton Heath (Carpetright and Sleepright), Tiverton, Wakefield (Cathedral), Wakefield (Westgate Storeys), Walsall, Warminster, Wigan (Robin Park), Wishaw, and York (Foss Island).
There are 11 more leases that comprise the total of 92, but these ‘dark stores’ are already closed, and the CVA will simply end their lease arrangements.
Carpetright currently expects to raise net proceeds of approximately £60m through an equity capital raising launched in May, and these proceeds will be used to fund the group’s ongoing strategy, reduce indebtedness and cover the costs associated with the CVA.
CEO Wilf Walsh says: “These tough but necessary actions will enable us to address the burden of a legacy UK property estate consisting of too many poorly-located stores on unsustainable rents and are essential if we are to restore our profitability and deliver a successful turnaround. Carpetright has engaged fully with the British Property Federation (BPF) on the detail of the CVA proposal and we thank them for their constructive approach.
“Completion of the CVA and equity financing will enable us to establish an appropriately-sized estate of modernised stores, on economic rents, complemented with a compelling online offer, enabling Carpetright to address the competitive threat from a position of strength.
“We will remain in close contact with all colleagues to keep them fully informed as we move through this process.”
Stephanie Pollitt, assistant director of real estate policy, BPF, adds: “These situations are never easy as landlords need to take into consideration the impact on their investors, including those protecting pensioners’ savings, as they vote on the CVA proposal.
“Carpetright and Deloitte, however, have demonstrated best practice, constructively engaging with the BPF early in the process and ensuring landlords’ interests have been properly taken into account. Ultimately, it will be for individual landlords to decide how they will vote on the CVA, but the proposal has sought to find a solution that works for all parties.”
Save for landlords compromised by the CVA, the CVA proposal will not seek to compromise claims of any other creditors, says Carpetright.
A Carpetright spokesperson comments: “We are launching a CVA proposal that, if approved, will result in the closure of 81 poorly located or over-rented stores, from a UK total in excess of 400, later this year. Planned closures will not affect our customers, all orders will be fulfilled either by the original store or a neighbouring Carpetright where necessary.
“Regrettably, we expect this will mean that around 300 colleagues would leave the business but we will make every effort to find alternative roles for those affected wherever possible. We’re also announcing that we plan to follow the CVA with an equity financing to raise £60m of new funds to invest in our stores and online offer, to strengthen the competitive position of the ongoing business.
“It’s important to stress that throughout the CVA process, we will continue trading as normal and customers can continue to shop with Carpetright with confidence. We do not expect the proposed stores to close before September 2018.
“We will remain in close contact with all colleagues to keep them fully informed as we move through this process."
Trading conditions remain difficult for the group, which still expects to incur a small underlying pre-tax loss for the FY year ending 28th April 2018.
Read more here.