Carpetright has confirmed plans to close 92 stores, with the potential loss of 300 jobs, in a restructuring process designed to stave off administration.
Shares in the UK’s biggest carpet retailer fell sharply 16% to 35p as the company said it wanted to move out of almost a quarter of its 409 stores in September.
It will also be asking landlords for rent reductions of up to 50% on 113 more sites under a company voluntary arrangement, a process designed to stave off insolvency and which must be approved by its creditors.
Completion of the CVA will be dependent on Carpetright also raising £60m in new funds from shareholders in order to reduce debt and cover the cost of the restructure. It also needs to secure £15m in short-term funding from its banks to cover immediate costs.
Carpetright, which has a UK workforce of 2,700, has issued a series of profit warnings in recent months, sending its shares sharply lower.
The company said the closures were necessary to “restore the viability of the group’s business model” as it struggles to survive amid a slowdown in the housing market and a squeeze on consumer spending which has dampened demand for expensive household goods.
Carpetright shops earmarked to close
Ayr
Ballymena
Bangor (N.I.)
Barnsley
Beckton
Belfast – Newtownabbey
Bicester
Birmingham Stechford
Blackwood
Bodmin
Borehamwood
Burgess Hill
Burnley
Bury
Caerphilly,
Catford
Coleraine
Derry/Londonderry
Dudley
East Grinstead
Edinburgh – Leith
Exeter
Exmouth
Falkirk
Folkestone
Fraserburgh
Glasgow – Great Western Road
Glasgow – Parkhead Forge
Gloucester
Great Yarmouth
Greenock
Guildford
Hamilton – Carpetright
Hamilton – Sleepright
Harrogate
Hayes
Hitchin
Honiton
Huddersfield
Inverness – Merkinch
Kidderminster
Kings Lynn
Launceston
Leeds – Birstall
Leeds – Hunslet
Lewes
Lichfield
Lincoln
Livingston
Llanelli
Luton
Maidenhead
Neath
Oldham
Putney
Reading – Oxford Road
Redhill
Renfrew
Scarborough
Scunthorpe
Sheffield – Meadowhall
South Shields
St Austell
St Helens
Stafford
Stanmore Stratford-upon-Avon
Streatham Common
Strood
Sunderland – Castletown
Telford
Thanet
Thornton Heath – Carpetright & Sleepright
Tiverton
Wakefield – Cathedral
Wakefield – Westgate (Storeys)
Walsall
Warminster
Wigan – Robin Park
Wishaw
York – Foss Island
It has also faced increasing competition, particularly from the Tapi chain set up by Carpetright’s founder, Lord Harris, and his son. Harris left Carpetright in 2014.
Several major retailers have fallen into financial difficulty as they battle with rising costs, from business rates and an increase in the legal minimum wage, as well as a shift towards online shopping.
Carpetright’s troubles come a few weeks after fashion chain New Look, advised by Deloitte which is also advising the carpet retailer, won approval for a CVA that involves the closure of up to 60 of its 593 stores and rent reductions on dozens more.
The baby goods retailer Mothercare is thought to be considering a similar move while Toys R Us pushed through a CVA before going bust earlier this year. The toy retailer said on Thursday it would close its remaining 75 stores by 24 April with the loss of more than 2,000 jobs.
Carpetright said trading “remained difficult” and it expected to make a small loss for the year to the end of April. The company intends to provide further detail a few days after creditors vote on the CVA proposal on 26 April.
Wilf Walsh, the chief executive of Carpetright, said: “These tough but necessary actions will enable us to address the burden of a legacy UK property estate consisting of too many poorly located stores on unsustainable rents and are essential if we are to restore our profitability and deliver a successful turnaround.”
What is a company voluntary arrangement?
A company facing financial difficulties prompted by heavy debts can apply for a company voluntary arrangement in order to avoid administration or other more disruptive forms of insolvency.
It is a legally binding insolvency process in which a company cuts a deal with creditors on unsecured debts. In retail, this usually involves asking landlords of poorly performing shops to reduce rental payments or allow the company to exit leases on stores which they would otherwise be bound to for long periods.
Companies hire an insolvency practitioner to assess the business and whether a CVA has a reasonable chance of success. They then produce a CVA proposal which may involve changes to the terms of leases or termination of onerous supply or employment contracts.
In order for a CVA to go ahead, the company must call a meeting of unsecured creditors, which may include suppliers and landlords. For the CVA to be approved, creditors who are owed at least 75% of the company’s total unsecured debt must vote in favour. At least 50% of creditors who voted for the CVA must not be connected to the company.
Once approved, the company can continue trading as usual and all unsecured creditors are bound by the deal, even those who voted against it or didn’t vote at all.
Creditors are often willing to support a CVA in the hope of recovering more cash than they would if the company went into administration or liquidation. They hope that reducing debts will help create a viable company that can continue to trade and pay them.
The process is popular with managers because they usually remain in charge of the company and it is cheaper than other forms of insolvency.
He said that getting rid of unwanted stores, most of which were signed up on 25-year leases in 1990s and early 2000s under previous management, would enable Carpetright to focus on improving the service and environment in its remaining outlets.
“Completion of the CVA and equity financing will enable us to establish an appropriately sized estate of modernised stores on economic rents, complemented with a compelling online offer, enabling Carpetright to address the competitive threat from a position of strength.”
Walsh said he was “committed to the project” of seeing the turnaround through. “I don’t think now would be the time to bail,” he said.
