High street fashion giant River Island is teetering on the edge of collapse and could run out of cash within weeks unless landlords and creditors back a drastic rescue deal in court.
The embattled retailer has warned it faces insolvency unless creditors approve a sweeping restructuring plan, which includes shutting 33 stores, slashing rent at 71 more, and writing off significant debts. The proposal, designed to avert a worsening liquidity crisis, is set to be heard at the High Court next week reports The Telegraph.
If three quarters of creditors vote in favour, an emergency cash injection from River Island’s billionaire owners, the Lewis family, will be triggered. This would allow the business to keep trading and cover its bills. But if the deal is rejected, River Island has admitted it will effectively run out of money by the end of August and be unable to meet its obligations.
The company has warned it would be forced into administration or other insolvency measures if the rescue effort fails. The stark revelations are laid out in a detailed 800-page restructuring blueprint drawn up by advisers at PwC.
It discloses that the retailer is facing a £10 million shortfall by early September, which could rise to £50 million before year-end. River Island employs more than 6,000 people, with 5,300 staff working in its shops and 950 based at its West London headquarters.
The company has blamed spiralling operating costs and a shift in shopping habits for its financial woes, admitting its once-vast store portfolio “is no longer aligned to our customers’ needs”.
PwC now faces the task of persuading 75 percent of creditors to approve the proposals. However, sources claim resistance remains strong among some landlords.
“This is family-run, they’ve just overstretched, and it’s unfair that the landlords will struggle because they haven’t maintained their relevance,” said one landlord whose sites were not impacted.
“We get cast as the big bad landlords creaming off imaginary super-profits, when the reality is very far from that. Nobody wants retailers to be forced into administration, but equally landlords don’t want to have retailers on a two-year lease at no rent that might fail anyway.”
The plan includes writing off tens of millions of pounds in unpaid rents and asking landlords of 24 stores to accept no rental income at all for the next three years. Other stores face rent reductions of between 25 and 75 percent.
Major landlords such as British Land, the Crown Estate, and Mike Ashley’s Frasers Group are among those affected, though all declined to comment.
Local councils will also feel the impact, with River Island intending to walk away from outstanding business rates. The cuts coincide with the start of the business rates year in April.
In a bid to cut costs further, the chain is also planning to return over 30 company cars leased through a vehicle scheme, with the debts on those vehicles to be written off completely.
A River Island spokesman said: “River Island circulated its proposals for a restructuring plan to creditors on June 20. In combination with the company’s ongoing Transformation Strategy, the plan is a proactive measure to place the company on a firm footing.
“We have been having positive conversations with key stakeholders and are confident that we will achieve approval of the plan in the next few weeks.”