CVA - A Landlord's Gift?
The subject of Company Voluntary Agreements (CVAs) has been a controversial topic for some time now as businesses across the consumer sector yank the cord to that ‘chapter 11-esque’ trapdoor out of trouble.
Are they the lifeline for the worthy, the last chance saloon to award one final play at steadying a business? Or, are they a get out of jail free card for leaders to withdraw from leases entered into of their own free will and in effect have landlords cover the bill? Well, it’s probably a bit of both as whilst landlords must be sensitive to their part in sustaining the future of our high street, they won’t stomach being the soft touch to cover the consequences of other bad decisions just because they are the biggest creditor. In my mind regardless, CVAs go way beyond just property and if a business is fundamentally broken despite an under-performing property tail, a few site closures changes very little.
There are many other poignant factors to consider here, some as fundamental as whether a concept remains proven in the first place and whether there is inclination, talent and money to transform and perhaps even reinvent the brand post-CVA. Look, if customers weren’t spending money with certain brands before, they aren’t going to start now just because they have less sites and cheaper rent. There must be a wider plan and some commitment to fund a turnaround strategy that really moves the dial and strikes at the very core of things like values, pricing, quality and a millennially-aligned sophistication around technology. I really believe that brands can change and undoubtedly there is life afterwards but failure to embrace wider transformation will put businesses out of scope for even Mike Ashley to buy afterwards.
I’m actually going to use Mike Ashley to finish my point on landlords, given the new endearment and limelight he attracts as he hoovers up the high-street and picks fights with landlords as one of Oxford Street’s largest and most prominent tenants. To be honest, some of his arguments actually make sense. Quoting Mr Ashley in the Chronicle Live, “I am disappointed that in my opinion a small number of greedy landlords still refuse to be reasonable. We’ve showed what we can achieve on the British high street when we work together with landlords. I would like to thank those landlords who have helped us to rescue approximately 3,500 jobs at the stores we have saved to date. I am calling on everybody to pull together, including landlords and local authorities in order to help to save as many House of Fraser stores and jobs as possible on the great British high street.”
Well, whilst Mr Ashley’s commercial motives for buying distressed businesses will be more tactical and certainly go beyond the tycoon’s new found compassion for staff-welfare, I do believe that him saving jobs at the same time as fighting for prime real estate is fair. Furthermore he is right about the fact that landlords play a critical part in helping the recovery of the high street. They hold the deeds after all but they must be mindful of the dangerous game they play if they continue to harden and become more immune to the crises in the F&B/retail space. Clearly concerned about the growing trendiness of CVAs that allow tenants to casually moonwalk out of lease agreements without consequence, I do see their worry although equally a steadfast attitude will only result in stalemate and/or vast high street under-occupancy which will only ensure the continued, acute erosion of the British high street.