Should you consider working for a company in a CVA (Company Voluntary Arrangement)? There is a lot of press around CVAs and the carnage on the high street, and you could be forgiven for thinking that there are hardly any companies left worth working for in retail.
Sadly, so much that is reported in the press is there to sell newspapers, and other people’s pain always seems to be the easy way to do it.
Retail sales are holding up quite well, considering the sluggish national economy at the moment; and people’s appetite for shopping shows no sign of diminishing.
What is happening, however, is a change to the way we shop. Online shopping is growing exponentially and will continue to do so for a few more years yet — at the expense of high street shopping. Nevertheless, shopping is a leisure activity like any other and, if you walk through Brent Cross on a Saturday afternoon or Oxford Street at just about any time of day, you wouldn’t think anything had changed at all.
There will be a point where the switch to online shopping levels off. In food shopping we are possibly already there; the rest will follow. No one knows when that will happen but it would be naïve to think that the high street is redundant.
Yes, there will be a shake-out as retailers lose their weaker outlets in order to consolidate their portfolios. The big issue is that rents, and therefore rates, are now far too high for the amount of trade the shops can generate.
It isn’t just Debenhams and Arcadia. It’s all shops. These two, along with others, including Carpetright, Mothercare and Homebase, have gone or are about to go, into a formal relationship with their landlords to agree store closures or rent reductions. This is not an ideal situation for either side, however it should be understood that this is not forced on the landlords. They can refuse. This is simply an agreement between commercially minded retailers dealing with commercially minded landlords to agree a sustainable future for both their businesses.
What exactly is a CVA?
A Company Voluntary Arrangement is a formal deal that allows an insolvent company to agree with its creditors to pay back its debts over a ﬁxed period of time. This applies to all creditors: HMRC, employees, trade or landlords. Where this is most notable with retailers, is with landlords.
For retailers with large property holdings, such as Debenhams, the CVA is largely used to renegotiate rents with landlords — usually one of the largest ongoing costs for retailers.
Many retailers have entered into similar arrangements, and there will be many more. Are these companies weaker than their counterparts who have not done so? Not necessarily.
I would be very surprised if all retailers were not now speaking with their landlords about reducing rents, for the rentable values of most retail space is plummeting and I don’t know of any retail company that would willingly pay more than it has to for anything. It is their job to buy stock as cheaply as they can and sell it at a proﬁt. That mentality rightly applies to everything that they purchase.
Of course, the landlords are not happy about it, which is understandable. They had planned to have ever rising rents and proﬁts. But the world has changed for them too, and the very last thing they want to see is total carnage on the high street. A CVA is merely two commercial entities, facing up to the new reality and deciding how to share the pain. Who comes off best? Well, that depends on the negotiation skills of the different parties.
There is a clear upside to the consumer here. Firstly, with cheaper rents and rates, prices will be lower, as the high street traders can give the internet traders a run for their money. As the playing ﬁeld is levelled we, as consumers, all beneﬁt.
Another advantage is this. For too long it has been near impossible for smaller retail companies to get sites in the major shopping areas because of the exorbitant rents and rates. As these fall we should expect to see more variation in our shopping centres, which have been becoming a little bit too generic. Already we are seeing innovations that did not exist 10 years ago.
A third, positive impact will be that as the high street stores ﬁght back against the internet, their standards will have to improve. Once this pain barrier has been overcome, we should expect to see more varied and interesting shopping areas with lower prices, easier parking and better facilities. The high streets will ﬁght back and they will still enjoy the lion’s share of retail sales.
Should you consider working for a company in a CVA?
Or, if you already do, should you consider leaving? A CVA, in most cases, is simply a device for companies to reduce their rents and rates and gain the ability to take on the internet. Yes, they are probably going through a bit of pain at the moment, but very often a company that is going through structural changes like this is going to offer opportunities that its more stable counterparts do not.
You might think that it’s a risk joining such a ﬁrm. But joining any organisation brings with it a risk of being sacked (unless it’s the London Underground). That risk should be balanced with the very strong upside that the company will enjoy when the rent issue is sorted. Companies in CVAs are not bad companies. On the contrary, they are companies that are spearheading the bricks and mortar ﬁght for lost trade to the internet.