Discount retailer Wilko has recruited CBRE to advise on its estate ahead of talks with landlords about options for cutting costs.
Sky News first reported that the general merchandise chain is working with CBRE ahead of formal negotiations with shop owners.
Bloomberg previously reported the chain had begun talks with adviser PwC to consider restructuring options, including a company voluntary arrangement, the contentious insolvency procedure that proliferated before and during the pandemic. The last comparable CVA was that of Poundstretcher in 2020.
Market sources told CoStar News that a CVA is not a foregone conclusion and one of a series of options being reviewed. Sources told Sky that Wilko is unlikely to permanently close a substantial number of its stores and will focus on rent reductions.
Mark Jackson, Wilko's chief executive, said in a statement: "We announced the start of our turnaround programme to drive Wilko forward in January, complete with a new streamlined senior team and a strategic plan to first stabilise the business and then implement a growth strategy."
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 click here.
Rising energy costs, inflation and interest rates have all been expected to lead to distress again in the retail sector, potentially 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.
There is also interesting in Fitness First's proposed restructuring plans, which are being set to be fought strongly by landlords.
Jonathan de Mello, founder and CEO of JDM Retail, said while the appointment of CBRE will "add teeth" to negotiations Wilko has been having with PwC and its landlords it seems likely that a CVA will now follow as, by now, it is most likely rent reductions will have been agreed.
"The problem for Wilko with pursuing a CVA is at some sites landlords will be able to hold firm in any negotiations with Wilko and may welcome it as there is strong alternative use demand, particularly from leisure operators who will pay more in rent."
De Mello says many landlords will be in a strong position. "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."