Shoe retailer Clarks has entered talks with its landlords this week as it seeks to shore up its finances amid the high-street downturn and the crippling coronavirus pandemic.
The restructuring is expected to result in the closure of around 50 Clarks stores and a switch to a ‘turnover rent’ model for future payments, Sky News first reported, putting hundreds of jobs on the line.
The deal will be in the form of a company voluntary arrangement (CVA) — a formal agreement between a business and its creditors which gives firms the chance of recovery — which must be approved by at least 75% of its creditors.
It sets out how repayments of company debts should be made to creditors and can deliver a better outcome than an administration or liquidation. If approved Clarks will receive a cash injection of more than £100m ($77m) from Hong Kong-based private equity firm LionRock Capital.
The move would mean that the founding Clark family would hand over majority ownership of the footwear retailer for the first time in its 195-year history.
A spokesperson told Yahoo Finance: “We recently announced Clarks’ long-term ‘Made to Last’ strategy that is designed to ensure that our business has a sustainable and successful future, keeping it in step with changes in how consumers around the world choose and buy their shoes.
“As part of this strategy, the Clarks Board of Directors is currently reviewing options to best position our business, our people and the Clarks brand for future long-term growth.”
CVAs have become increasingly popular over the last few years as Britain’s high street suffers from declining footfall, increased business rates and the rise of online shopping. The coronavirus pandemic has only heightened the issues retailers are facing.
Earlier this year the British Property Federation (BPF) warned that retailers are “weaponising” CVAs as part of a bid to cut costs. It said that the restructuring technique is being abused and landlords are suffering as a result.
BPF boss Melanie Leech said: “We support a rescue culture, but CVAs are being weaponised.
“Rather than as part of a sustainable rescue plan for those in genuine distress, they’re becoming a boardroom negotiating tactic for solvent businesses to rip up leases freely agreed with property owners.
“The process is discriminating against property owners, allowing non-affected creditors to vote on a CVA, yet forcing property owners to absorb the lion’s share of the burden.”
In May, Clarks revealed that it was set to cut 900 corporate roles, which would be partially offset by the creation of 200 new jobs.
The company also announced 160 redundancies in the spring, including 108 at its Somerset headquarters.
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