Poundstretcher seeks rent cuts in survival bid
Discount retailer Poundstretcher is set to be restructured by its owner, Fortress Investment Group, to reduce property-related overheads and avoid closure.
The plan will see the retail chain, which operates 298 stores in the UK, stabilise a “substantial fall in turnover” and rising leasehold costs, the Insolvency and Companies Court heard today.
In the High Court on Thursday, the company’s barrister said Poundstretcher’s financial position as it stands is “poor and unprofitable”, and that if it entered administration rather than a restructuring, it would likely be liquidated immediately.
If it faces liquidation, the retailer’s less well-performing stores would trade for around two weeks before closing, while better-performing stores would trade for up to 12 weeks before closing permanently.
This follows reports a month ago that the retailer was pursuing a property restructuring plan under Fortress, which involved advisors managing the process rather than a full insolvency administration for the company.
Fortress, which also owns Majestic Wine, acquired the company two years ago as it continues to face shrinking market demand and economic pressures. Despite the acquisition, the retailer has struggled with a deterioration in customer spending and rising operational costs.
‘Deterioration in demand’ for customers
Mr Justice Hildyard told the retailers that a “substantial fall in turnover” has been driven by current market conditions that suggest some deterioration in customer appetite for demand.
The judge added that the company has “over-rented” considering its financial conditions and “needs to make arrangements through the plan to reduce its obligations in its number of leases”.
The plan aims to negotiate rent costs with the stores’ various landlords, with Fortress seeking to cut rent costs by at least 25 per cent across sites and potentially completely eliminating rent for a number of those performing particularly badly.
Landlords, in exchange for the rent concessions, will be offered an equity stake in the business to counteract their financial losses.
Without the plan, the retailer faces taking on a deficit of approximately £2.8m by late June, rising to £9.7m the following month due to rent quarter payments, VAT costs, and business rate charges.
If the court approves the plan to go ahead, there will be no redundancies or store closures.
Company directors said if the plan is not approved to go ahead by the court, then they would “likely have no choice but to file for administration”, Hildyard said.
“We welcome today’s court decision that allows our plan to proceed. Our plan is focused on strengthening Poundstretcher’s long-term position and creating a company that can grow in the years ahead,” A Poundstretcher spokesperson told City PM.