The footwear retailer Clarks is kicking off talks with landlords about store closures and rent cuts, reviving tensions between high street shop-owners and tenants which have been thrust into sharp focus during the COVID-19 crisis.
Sky News understands that Clarks and its advisers are meeting with landlords this week to discuss a restructuring that would see the chain switch to a ‘turnover rent’ model for future rent payments.
The proposed deal, which must be approved by creditors, would be in the form of a company voluntary arrangement (CVA), a form of insolvency mechanism which has been, at times, controversially deployed by retailers and casual dining operators.
If the CVA is approved, it would pave the way for Clarks to receive a cash injection of more than £100m from LionRock Capital, a Hong Kong-based private equity firm.
That would entail the founding Clark family, who established the business in Somerset in 1825, relinquishing majority ownership of the company for the first time.
The restructuring would also involve the permanent closure of roughly 50 UK shops, triggering hundreds of job losses.
Clarks’ pension trustees are expected to play a significant role in the CVA vote, with the deliberations over the chain’s future coming as the COVID-19 pandemic continues to wreak havoc on Britain’s high streets.
Numerous chains have been forced into emergency restructuring deals, although some have drawn criticism from landlords over the scale of the pain inflicted on store-owners.
The British Property Federation (BPF), which represents commercial landlords, previously attacked New Look, the fashion retailer, for “weaponizing” CVAs in order to cut costs.
On Monday, Melanie Leech, the BPF chief executive, said: “The BPF supports a rescue culture for businesses in distress – including CVAs, which were designed to support a struggling business back onto its feet, with store closures and rental discounts, as part of a wider restructuring to safeguard the business’ future.
“It is in property-owners’ interests to support tenants working hard to create a sustainable future for their business.
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“The CVA process, however, is increasingly being used by businesses to simply walk away from debt owed to creditors, including local authorities, and to rip up leases freely agreed with property owners, without the business addressing its wider issues. This abuse must stop.”
LionRock’s injection of funds into Clarks is understood to be contingent upon the CVA being approved, making the restructuring vote critical to securing the company’s future.
In May, Clarks’ new chief executive, Giorgio Presca, unveiled a strategy – dubbed ‘Made to Last’ – that will aim to steer it into its third century of operation.
The company was founded in 1825 and has become synonymous with generations of parents buying their children’s first pair of shoes.
It remains largely owned by descendants of Cyrus and James Clark, who founded the business in Somerset nearly 200 years ago.
Clarks trades from about 345 stores in the UK, employing thousands of people, many of whom were furloughed under the government’s Coronavirus Job Retention Scheme.
In the last year for which figures are available, Clarks reported a post-tax loss of more than £80m.
The company declined to comment specifically on a CVA, but repeated an earlier statement which said: “We recently announced Clarks’ long-term ‘Made to Last’ strategy that is designed to ensure that our business has a sustainable and successful future, keeping it in step with changes in how consumers around the world choose and buy their shoes.
“As part of this strategy the Clarks board of directors is currently reviewing options to best position our business, our people and the Clarks brand for future long-term growth.”