Alexon’s restructuring breaks new ground

The Company Voluntary Arrangement worked for retailers like JJB and Focus, but Alexon’s restructuring breaks new ground.

“The process was so successful we ended up with over 90% of Alexon’s landlords on board,"

We’ve looked a number of times recently at the challenges of managing a portfolio of retail stores through an economic downturn. Recent issues of What’s in Store? have considered the shift in the balance of power between landlords and tenants, and the concessions some owners are prepared to make to keep their stores occupied, whether that’s rent cuts, rent-free periods, or rent deferrals.  But many retailers are still having to cope with upwards-only rent reviews, which have accelerated difficulties at under-performing stores. A small number of these businesses have even more systemic problems with their retail estates, and have resorted to using Company Voluntary Agreements, or CVAs, to help solve them.

In the last year Focus DIY, Blacks Leisure, Suits You, and - most famously - JJB Sports have all used CVAs as a way of making swift and radical changes to an ailing business. The basic premise of these agreements is simple: the retailer offers its landlords an upfront payment (typically six months’ rent) in exchange for their agreement to cancel the leases on their stores. 75% of the landlords have to agree, and if this proportion is reached, all the others are bound by the same terms. JJB used this process to close 140 of its 390 stores, and Blacks closed around 90 by the same means. It sounds ideal - quick, effective, and (relatively) painless. But is it really? The CVA does have its drawbacks, and some of the companies who’ve taken this route have certainly encountered them.

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