In our recent article on restructuring options for retail businesses, we outlined how a number of companies in that sector had implemented or were considering Company Voluntary Arrangements (CVAs).
Since our article, one of the most high profile CVAs collapsed, and Toys R Us went into administration. The reason for this has been attributed to continuing poor sales (no Woolworths-like nostalgia giving its' post-insolvency trading a boost here) and a looming VAT bill the company was unable to settle. Toys R Us are now winding down their operations, and it is expected that all the stores will close in due course.
Prezzo has become another national restaurant chain to propose a CVA recenrly. Its creditors have been asked to vote to approve a CVA proposal which has a strategy of winding down operations, closing unprofitable sites, instead enabling the company to focus on the profitable. The CVA proposal makes it very clear that if creditors do not vote in favour, then the chain will be another which goes into administration.
It is clear from these insolvencies that traditional retailers are at risk. Toys R Us may once have attracted customers with its large out of town stores with plenty of parking, but such enormous spaces come at significant expense, which perhaps is not easily justified in an age of online shopping and delivery being so widely available and used by consumers.
The increasingly widespread use of ordered online for delivery services, including such 'gig-economy' services such as Uber Eats and Deliveroo, could well be a factor in the difficulties faced by national restaurant chains. However, this is not the only challenged faced by those brands, with city centre rents and rates as well as significant competition continuing to be an issue.
Toys R Us, Maplin and Prezzo are unlikely to be the last of the high profile insolvencies in these sectors.