Mounting financial pressures hit the retail and restaurant sectors
High street behemoth Debenhams has announced plans to shut up to 50 stores, and while the firm’s chief executive has insisted the business remains profitable, it is reflective of growing pressure on high street retailers.
Unveiling the largest loss in its 240‐year history, the retailer scrapped its dividend and is writing down nearly £525 million in exceptional costs.
Store closures are expected in the next three to five years and it is predicted that the move could cut costs by £130 million.
But Debenhams is not the only retailer facing difficult times.
Department store giant House of Fraser briefly entered into administration over the summer while John Lewis has also recorded a huge drop in profits in 2018.
Tougher trading conditions have also hit the restaurant sector with Gourmet Burger Kitchen the latest chain to enter into a company voluntary agreement.
That follows Byron, Carluccio’s, Prezzo and Chimichanga who have also used a CVA this year to streamline operations and cut costs.
Designed to reduce pressure from creditors chasing debts, a CVA enables a business to restructure quickly and effectively, provided it can prove that it is still viable and was once profitable.
By freezing all unsecured debts and by drawing up a new repayment schedule, a business can repay debts over time using future trading profits.
Terms will be set out in the CVA proposal and must be agreed by the creditors, but it remains a highly flexible solution for businesses facing difficulties.
Rising operational costs, higher labour rates, greater competition and wider economic uncertainty have all impacted on the finances of those operating in the retail sector.
An alternative for a struggling business is turnaround management, whereby an insolvency practitioner can work with existing management to provide the innovative approaches needed to change the fortunes of the business.
By reviewing the systems, overheads and processes that are in place, it can be possible to achieve better outcomes for the business.
By Phil Smith
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