The age of the CVA: Carpetright joins growing list of retailers to restructure
The Surrey-based firm has pointed to the decision of Carpetright to apply for a company voluntary arrangement (CVA) as another example of a retailer creating breathing space to help them restructure their business and adapt.
According to reports, Carpetright is exploring a plan to restructure and rescue its stores, which will likely see a number of locations across the UK close and some staff redundancies made, as both a cost-cutting and streamlining strategy.
Lynn Gibson, Director at Gibson Hewitt, said: “The retail sector at the moment is facing immense pressure and we have already seen a number of businesses fail as a result of not sufficiently changing their business model and company structure.
“With the likes of large online retailers such as eBay and Amazon offering convenience and lower costs to shoppers it is not at all surprising that those who don’t adapt to this changing attitude are being forced to reassess their operations.
“Of course there is also greater consumer focus on ‘experience shopping’ such as days out and activities, which is beyond the control of average retailers.”
Lynn is not surprised that Carpetright has chosen to apply for a CVA and says it is following a restructuring trend amongst retailers, which has included BHS, Austin Reed and ToysRUs – all of which later failed despite the breathing space offered.
“In the case of a company like BHS the CVA could be seen as a last hurrah before the curtain fell, but if the situation at Carpetright is to be believed, then the CVA might allow it time to restructure the business to make it more cost-effective,” said Lynn.
“However, closing a few stores and making redundancies may not be enough in all cases and businesses need to look at current changing consumer trends if they are to adapt enough to maintain profitability.”
A CVA is a statutory contract between a company and its creditors that allow the struggling business to restructure its debts.
Whilst other forms of insolvency, such as administration, require directors to relinquish control of the business, CVAs are favoured as they allow the company to operate normally, subject to the supervision of an insolvency practitioner, such as Gibson Hewitt.
Lynn concluded: “With a number of retailers announcing profit warnings, such as B&Q and Moss Bros, it is inevitable that more will turn to CVAs as an alternative to more stringent insolvency proceedings.
“However, these agreements are not only for large retailers. We have worked with a number of smaller chains and independent shops, who have benefited significantly from CVAs.”