River Island got the green light from the High Court for its restructuring plan on Friday so its planned 33 store closures will now go ahead and a lifeline loan from the family that founded and own it will be unlocked.
It means the retailer will avoid running out of cash next month as it was in danger of doing with an administration filing having been the likely next step in that scenario. This will be a relief for the leadership team, although those who’ll lose their jobs and the landlords who were unhappy that the plan also includes three-year low- or no-rent deals for 71 stores will be less so.
River Island’s lawyer told the court that the brand has faced supply chain disruption, rising energy prices, wage inflation, and lower footfall from the shift to online shopping. This all meant that it was unable to halt its decline and that it had a “cost base that’s too high and unsustainable at its current level”.
The company, which currently has 223 UK and Ireland stores, is to get funding to the tune of £40 million from Blue Coast Capital. This is the founding Lewis family’s personal investment company and also the company’s biggest creditor.
Landlord opposition had become clear at an earlier creditors’ meeting when enough creditors voted against the plan to necessitate the company seeking High Court approval. But it was widely expected that the court would greenlight the plan.
Yet it remains to be seen whether the actions to be taken will be enough and the company really needs to turn around its performance from here. That won’t be easy, but with underperforming stores closed and easier rent deals, it has a strong chance.
Chris Bowers, a partner and head of insolvency at Forbes Solicitors, told FashionNetwork.com: “The real question now is whether the restructure plans are anything more than just a sticking plaster, prolonging an inevitable collapse in the near future. Restructure plans concentrate on shutting stores and cutting rents. Such moves support liquidity but stop short of addressing declining sales. River Island’s most recent accounts show turnover fell more than 19%. Any form of long-term survival needs to reconnect the retailer with consumers to boost revenues, and quickly.”
Bowers cited Arcadia, which went into administration just over a year after a CVA-based restructure.
Meanwhile, Marty Bauer, retail and e-tail expert at e-commerce marketing platform Omnisend, told us: “River Island’s decision to restructure, including the closure of 33 stores, is a stark reminder of the ongoing challenges faced by retailers operating on the British high street.
“Sadly, this is an all-too-familiar tale, with physical stores often struggling to compete with the convenience and accessibility of online shopping, and sailing against the wind when it comes to shifting buying habits.
“The future of the high street is uncertain, but while online shopping continues to innovate with better customer service and convenience, many shoppers still value the tactile in-store experience and personal interaction. This is where the key to success still lies.
“While the likes of River Island and New Look have faced challenges on the high street, other fashion brands such as Uniqlo are going from strength to strength by creating a seamless shopping experience that offers well-curated selections, an efficient checkout process and unique in-store experiences such as clothing alterations.”
As for the reason for the court’s approval of the plan, Lucy Trott, managing associate and insolvency expert at law firm Stevens & Bolton, added that with it having been supported by 80% in value of the company’s creditors but failing to meet the required 75% support in each creditor class, “the High Court was asked to ‘cram down’ the dissenting categories of creditors [that is, impose it on them], which reportedly included landlords, local authorities and trade creditors.
“For the court to grant sanction, it would need to be satisfied that none of the dissenting classes of creditors would be worse off than in the ‘relevant alternative’ scenario which would likely be administration or liquidation, with a sale of the company’s business or assets to follow.
“It is possible that the dissenting creditors could yet seek to appeal the court’s decision to sanction the plan particularly in light of the damaging precedent this decision sets in relation to cramming down commercial landlords. However, the River Island creditors will no doubt be wary of appealing the court’s decision in light of the recent Court of Appeal judgment on the Thames Water appeal. If the restructuring plan were to be upheld on appeal, an adverse costs order would rub further salt in the creditors’ wounds.”
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