New Look wins backing for turnover-linked rents

New Look has won approval for its store rents to be linked to turnover as part of a deal to secure the struggling fashion chain's future.

The company said its creditors had backed a company voluntary arrangement (CVA), safeguarding 11,000 jobs.

The agreement means that its landlords will have to accept a percentage of a shop's revenue for their rent instead of relying on a fixed lease.

New Look said the new model "reflects the wider retail market".

Landlords have been willing to renegotiate turnover-linked rents during the coronavirus pandemic, as vast areas of the economy were forced to shutdown.

However, New Look's decision to link its proposal to a CVA has drawn criticism from the British Property Federation.

"CVAs were designed to be short-term, as part of a wider rescue package, to support businesses in genuine distress," said the federation's chief executive, Melanie Leech.

"We support this rescue culture, but today's result clearly demonstrates how the process is now wrongfully being used as a weapon by businesses to rip up leases permanently."

Setting a precedent

New Look - which is undergoing its second CVA in three years - said that 402 of its shops would move to the turnover-linked model.

Rent on these stores will be charged at between 2% and 12% of revenue. Under the CVA, the remaining 68 stores will move to zero rent.

Chloe Collins, senior apparel analyst at GlobalData, said the model would set a precedent for other retailers in their dealings with landlords.

But she warned: "New Look is such a big player in the market and would, upon collapse, have left over 400 empty stores on High Streets and in shopping centres, so smaller retailers must think twice before assuming similar CVAs would be approved, given they may not be as important to landlords."

During lockdown, the migration from in-store shopping to online accelerated.

However, New Look's chief executive, Nigel Oddy, said the firm "fundamentally" believed its physical shops still had "a significant part to play in the overall retail market".

He added: "We look forward to working closely with our landlords and all creditors to ensure we can navigate the uncertain times ahead together."