Discount homewares and household goods chain Wilko is considering a company voluntary arrangement in a bid to slash rents and offload underperforming stores, in what would be the first such move by a major retailer in three years.
Bloomberg first reported the chain has begun talks with adviser PwC to consider restructuring options, including a CVA, the contentious insolvency procedure that proliferated before and during the pandemic. The last comparable large scale CVA was that of Poundstretcher in 2020.
Chief executive Mark Jackson told Bloomberg: “We’re in the early stages of the turnaround and, as is usual, the directors continue to explore all options for Wilko’s long-term future.”
The retailer has been on a major cost-cutting exercise in recent months, agreeing a £40 million funding package in January with turnaround business Hilco UK. It posted a £36.8 million loss in its recent full-year results thanks to increasingly difficult trading conditions.
Wilko has 408 stores in the UK. In January Canadian asset manager Brookfield agreed to buy the headlease on the budget retailer's 1.1 million-square-foot distribution hub in Worksop in Nottinghamshire from third-party logistics specialist DHL for £88 million or a 5.75% yield.
The transaction was structured as a sale-and-leaseback transaction with DHL only two months after Wilko agreed a £48 million, 15-year sale-and-leaseback with the logistics company on the hub, with DHL retaining the headlease at the time. That deal enabled Wilko to pay off its revolving credit facility.
The market will be closely watching the retailer, particularly if it pursues a CVA, because of falling business rates bills for retailers and increased appetite for space from alternative uses such as leisure operators.
CVAs have been much less used in the past three years as market conditions have improved for retailers.
They are legally binding agreements with a company's creditors to allow a proportion of its debts to be paid back over time and need 75% of the creditors, by value, to support the proposal. For a review of why they have been controversial in the UK and why they have been few and far between recently click here.
Rising energy costs, inflation and interest rates have all been expected to lead to distress again in the retail sector, prompting a return of CVAs. Cineworld and Joules are among the businesses been linked to them recently. Next bought Joules out of administration last year, but a number of stores have closed, while Cineworld is close to making a decision on its UK business.
Jonathan De Mello, founder and CEO of JDM Retail, says UK retailers have proved to be remarkably resilient in the face of the rising cost of living, a testament to the strength of the sector overall. A Wilko CVA has seemed inevitable for some time though, he adds.
"A CVA was always on the cards for Wilko given Hilco’s rescue funding in January of this year. Following the axing of 400 jobs since then, efforts to reduce property costs were inevitably going to be next. A potential CVA would likely consist of a mix of store closures in under-performing locations, and rent reductions via negotiation with landlords."
But De Mello thinks that in some instances landlords can hold firm in any negotiations with Wilko.
"This is because business rates have dropped considerably for Wilko this year, while non-food inflation input costs have started to abate – not least freight costs, which had a huge impact on profitability.
"There is also increased interest in some Wilko stores from leisure operators in particular, given their size, configuration, and generally strong high street locations."