Business Fashion

AllSaints asks landlords for rent cut to avoid going bust

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AllSaints is asking its landlords to slash the rent bill on its 41 UK stores as the upmarket fashion brand tries to avoid going into administration.

The retailer has embarked on an insolvency process known as a company voluntary arrangement (CVA) to force its landlords to agree a switch from fixed monthly rents to a turnover model, whereby rents are pegged to a store’s actual sales.

AllSaints chief executive, Peter Wood, said the business had been growing strongly in the UK and in overseas markets until the coronavirus lockdown forced the closure of its stores. The shutdown had had a “substantial and sudden impact” on sales, he said.

Quick guide

Why are UK high street retailers in trouble?

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What’s the problem?

Physical retailers have been hit by a combination of changing habits, rising costs and broader economic problems as well as unseasonable weather. In the past few years names such as Mothercare, Karen Millen, Toys R Us, Maplin and Poundworld have disappeared from the UK high street as a result.

In terms of habits, shoppers are switching to buying online. Companies such as Amazon have an unfair advantage because they have a lower business rate bill, which holds down costs and enables online retailers to woo shoppers with low prices. Business rates are taxes, based on the value of commercial property, that are imposed on traditional retailers with physical stores. 

At the same time, there is a move away from buying “stuff” as more people live in smaller homes and rent rather than buy. Uncertainty about the economy has also slowed the housing market and linked makeovers of homes. Those pressures have come just as rising labour and product costs, partly fuelled by Brexit, have coincided with economic and political uncertainty that has dampened consumer confidence.

What help do retailers need?

Retailers with a high street presence want the government to change business rates to even up the tax burden with online players and to adapt more quickly to the rapidly changing market. They also want more political certainty as the potential for a no-deal Brexit means some are not only incurring additional costs for stockpiling goods but are unsure about the impact of tariffs at the end of this year. Retailers also want more investment in town centres to help them adapt to changing trends, as well as a cut to high parking charges, which they say put off shoppers.

What is the government doing?

In the December 2019 Queen’s speech, the government announced plans for further reform of business rates including more frequent revaluations and increasing the discount for small retailers, pubs, cinemas and music venues to 50% from one-third. It has also set up a £675m “future high streets fund” under which local councils can bid for up to £25m towards regeneration projects such as refurbishing local historic buildings and improving transport links. The fund will also pay for the creation of a high street taskforce to provide expertise and hands-on support to local areas.

What is the outlook in 2020?

Some retailers could go under. Weakened by a difficult Christmas – which accounts for the entire annual profits of many retailers, and with further potential Brexit wobbles to come – retailers are facing another tough year in 2020. The latest rise in the national minimum wage in April will also add to costs and hit profits. On the plus side, there are hopes of a boost to the housing market from increased certainty about Brexit after the general election. There are also signs that the shift to online shopping is slowing, potentially easing the pressure on high streets.

Sarah Butler

Photograph: Matthew Horwood/Getty Images Europe

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“We have taken this step in order to ensure the long-term viability of AllSaints in the face of the unprecedented impact that Covid-19 has had on our business,” explained Wood of two separate CVAs, one for the UK chain and the other for its North American subsidiary.

In common with other high street retailers AllSaints has started reopening its stores but, with extensive social distancing measures in place, the company said there was “significant uncertainty around customer appetite to travel and shop in store”.

CVAs have become commonplace in the retail sector in recent years. They were happening before the pandemic as retailers with large store estates argued rents needed to be lowered to take account of the growth in online shopping. The trend had been accelerated by the lockdown, which forced the closure of non-essential retail stores for three months.

Earlier this week, Poundstretcher said it could close up to 253 outlets – affecting more than 2,000 jobs – if landlords did not agree to a CVA which is asking them to stomach substantial rent reductions.

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AllSaints, known for serving up a chic Goth-inspired wardrobe of black, beige, and grey outfits, made its name selling leather biker jackets and scuffed Victorian-style boots to well-heeled shoppers. The retailer has been owned by the private equity firm Lion Capital since 2011.

Under the AllSaints proposal most of its 41 UK stores and 42 stores in the US and Canada would move to turnover-based rents. A small number of loss-making stores are earmarked for closure under the plan which will be put to creditor votes at the start of July.

Wood added: “The CVAs will allow us to sustain a strong physical retail presence, which in turn will allow us to protect jobs and continue to provide great product and service to our customers.”

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