Fashion retailer Superdry is looking to reduce rents principally by moving to turnover rents at 39 stores and delist from the London Stock Exchange as part of a major restructuring plan aimed at shoring up the business.
The company is seeking rental reductions at around 40% of its 94 UK stores to make material cash savings over a three-year restructuring period. This follows what the retailer called a "comprehensive review" of its estates portfolio with financial adviser Teneo.
Under the plan, Superdry said landlords and concession counterparty creditors will see their buildings arranged into seven separate classes, running from Class A1 to Class C.
The restructuring proposals seen by CoStar News show that Superdry will not ask for rental concessions from landlords of so-called "Class A" properties. Stores in this category include those at Manchester's Arndale shopping centre, Bluewater in Kent and Glasgow's St Enoch shopping centre.
At Class B1 properties, Superdry has asked landlords for estimated rental value rent for 36 months, while it has asked owners of Class B2, B3, B4 and B5 properties for a move to turnover rents set at 16%, 12%, 8% and 4% respectively for 36 months. At Class C buildings, which are its stores on Oxford Street and at Battersea Power Station, the plan states that "all liabilities" to the landlord will be "irrevocably and unconditionally released and discharged".
A shift to turnover-based leases, which have been in use in many sectors of real estate across the world since the 1970s, was accelerated in the retail sector during the pandemic.
The Investment Property Forum's definition of turnover rents is that all or part of the rent is based on an agreed percentage of the turnover or earnings before interest, tax, depreciation and amortisation of the business carried out from the property. In some cases, the whole of the rent is determined by turnover. A favoured alternative is a fixed base rent with the overall rent being topped up by a percentage based on turnover.
For a detailed review of the structural shift in the sector towards turnover leases click here.
Along with requesting rental reductions, the business is looking to for an extension of the maturity date of loans made under its debt facility agreements with Bantry Bay and Hilco.
The company is also looking to raise up to £10 million through the sale of new shares and will delist from the Stock Exchange as a way of making "significant annual cost savings".
Julian Dunkerton, Superdry CEO and co-founder, said in a statement that the group's restructuring plan marked a "critical moment in Superdry's history", with the group warning that creditors' failure to back it would result in the retailer entering administration.
"At its heart, these proposals are putting the business on the right footing to secure its long-term future following a period of unprecedented challenges," Dunkerton said. "I am aware of the implications for all our stakeholders and I have sought to protect their interests as much as possible in the proposals we are announcing today."
He added: "My decision to underwrite this equity raise demonstrates my continued commitment to Superdry, its stakeholders, its suppliers and the people who work for it. My passion for this great British brand remains as strong today as it was when I founded the business."
A restructuring plan is a formal procedure under Part 26A of the Companies Act 2006 for companies in financial difficulties, that are affecting its ability to carry on as a going concern, to agree with its creditors a compromise or arrangement in respect of its debts owed to those creditors.
Superdry closed 12 stores in the first half of 2024, but has made clear its intention to keep its remaining UK 94 stores open. Further store closures will depend on whether landlords at the 39 stores agree to rental reductions. If not, the retailer could have its leases terminated, resulting in forced closures.
Jonathan de Mello, founder and CEO of JDM Retail Consulting, suggested to CoStar News that some landlords may choose to work with the retailer, but that they would ultimately have to think about their own businesses.
"[Superdry] will find it hard to gain significant reductions from landlords, who will be mindful of their plight and will want to help them. But also landlords don't want to prop up a business that is ultimately going to fail [further] down the line.
"It's up to landlords to look at the stores on a case-by-case basis and, if they can let the property out to someone who is more financially solvent, then they will do."
De Mello added that Superdry's financial difficulties, along with the collapse of high street staple Wilko last year, did not reflect the mood music of the wider retail sector.
"To me it is still not symptomatic of the sector... the sector is doing okay. You have Next, Sports Direct and Frasers Group who are all doing really well, so for me it's not symptomatic of wider problems.
"But it is showing that badly managed businesses will come unstuck in this current climate; you can't run a business in such as way and expect to thrive. You have to think about cost control and your rents, and how much you are paying.