JJB plan could be blueprint for other struggling retailers

JJB Sport’s use of a company voluntary arrangement to help stave off
financial collapse could be used by other struggling retailers, a corporate
restructuring expert has said.

The sports retailer announced a CVA last week as part of a corporate
restructuring.

Under the proposed CVA, which is being managed by KPMG, JJB would be able to
‘temporarily vary’ the terms of the leases of about 250 ‘open retail’ stores to
permit monthly rent payments.

A successful CVA could be copied by other retailers that are struggling to
pay their rent, as the recession bites.

Christine Elliott, chief executive and director of the Institute for
Turnaround, said: ‘Monthly and turnover rents are here to stay and are part of
the new reality that will re-set landlords’ and retailers’ expectations. The CVA
could be used to help save JJB and other struggling retailers.’

However, JJB’s CVA proposal could face opposition from retail landlords. In
February Stylo, parent company of shoe retailers Barratts and PriceLess, saw its
attempts to broker a CVA through subsidiary companies blocked by its landlords.

Retailers have campaigned for landlords to switch to monthly rent, if
requested by businesses, rather than the standard quarterly payment.

Richard Fleming, KPMG’s UK head of restructuring, and proposed ‘supervisor’
of the CVA, said the offer was a fair compromise between JJB’s operational needs
and landlords’ rights under tenancy agreements.

‘Combined with the disposal of the health club business and the continued
lender standstill, the proposed CVA gives JJB the opportunity to preserve
trading stores and around 12,000 jobs,’ said Fleming.

The CVA proposal is asking the landlords of the unoccupied stores to come to
a compromise on the company’s financial liability, he said.

‘We have a pot of around £10m that landlords can claim against, which should
mean that, on average, landlords receive over six months’ rent each.’

KPMG has written to creditors about its CVA proposal. It said it will
announce a detailed proposal in the week starting 20 April.

Last week, the British Retail Consortium warned that deteriorating economic
conditions meant that this quarter’s rental demands were the toughest quarter
rental payments faced by retailers for ‘at least 18 years’.