Arcadia's Future: Whether CVAs Even Work Is A Coin Toss

Editor's note: In light of the decision by creditors to approve the company voluntary arrangement proposal of Arcadia on 12 June 2019, Bisnow decided to dig the crates and republish this article from almost exactly a year ago about whether CVAs actually help struggling retailers survive.

This is the year of the company voluntary arrangement, with 14 having been undertaken so far in 2018, and more anticipated.

They are disliked by landlords but generally grudgingly accepted as a way for retailers to close unprofitable stores and reduce rents as a price for keeping a company afloat.

But research from retail tenant advisory specialists Harper Dennis Hobbs shows it is pretty much 50/50 as to whether a CVA keeps retailers in business long term, and very few CVAs can be considered a success.

HDH analysed 29 CVAs undertaken up to the end of the first quarter, and only 15 of the retailers in question still operate any stores, with the other 14 having gone into liquidation or administration.

With only four CVAs undertaken this year, the jury is also still out on some of the companies in question.

What is more, of the 21 CVAs undertaken before 2017, HDH said that only five could be considered a relative success: Flannels and Blacks Leisure in 2009, Fitness First in 2012, and Menarys and Mamas & Papas in 2014. That is a success rate of 25%.

For Fitness First, Blacks and Flannels, this restructuring made the brands a more attractive proposition for buyers, as all three were later bought out by other retailers, HDH said.

Only the latter is a bigger brand today than they were pre-CVA; with the opening of Flannels’ latest Oxford Street flagship, the number of stores in operation will have nearly doubled from 12 to 22, and revenue has grown from £19.3M in 2009 to £35.4M in 2017.

Something to think about as landlords weigh CVA proposals from the likes of House of Fraser.