River Island will face its last chance to restructure its flagging finances this Thursday at the High Court, with the retailer set to fall into administration as early as September if the plan is not allowed.
This follows months of uncertainty over the company’s future as customers increasingly turn away from middle-market, bricks-and-mortar stores.
“River Island’s future now lies in its ability to persuade the High Court that it can survive if given its restructuring plan…[it] is effectively entering its last chance saloon.,” Nick Stockley, partner at Mayo Wynne Baxter, said.
“If the High Court does not allow the restructuring plan… [the company] will go into either administration or liquidation,” he added.
River Island’s restructuring plan, which the High Court will decide whether to allow on August 8, involves cutting rents (some to zero) across parts of its 230-strong store estate, alongside closing 33 stores and writing off some debt.
On August 1, the plan failed to pass a key creditor vote, resulting in responsibility for the decision falling to the High Court.
“The outcome of the meeting is what was expected… [it’s a] hefty rent cut for some [landlords], and 24 shops are being asked to accept zero rent for a period of time,” Michelle Quinn, partner at Grosvenor Law, said.
High Court likely to pass the restructuring plan
The High Court is able to exercise a power called a ‘cross-class cram down mechanism’, Quinn said, which would allow a restructuring plan to be imposed on creditors.
For the court to use the mechanism, two criteria have to be passed: Firstly, at least one class of creditors needs to have voted in favour of the plan. Secondly, the dissenting class – here, the landlords – will be no worse off than the alternative if the plan didn’t go ahead.
“I think it’ll all come down to arguing about whether the landlords will be worse off [with River Island in administration],” Quinn said.
This depends on whether the administrators would be able to afford to pay any rent to landlords, or if stores would simply close, she said, adding that she thought the plan would “likely” get approved by the judge.
Stockley added: “The Court will have to consider if there is a genuine prospect that River Island can survive.
“If the Court thinks that it will only delay River Island’s inevitable demise then it will not allow the proposed plan. If the High Court rejects the plan then all the stores and jobs are at risk.
If the Court does approve the restructuring plan, landlords will be able to appeal the decision, although it’s an expensive process.
“I’m not sure it would be worth appealing… do the landlords genuinely think that if this plan doesn’t go ahead, that they are going to get more money out of [River Island]?” Quinn said.
The High Street is ‘really suffering’
Britain’s high streets have been facing huge pressure from the rise of online shopping and ever-ballooning costs.
Business rates, increasing taxes and low footfall have all heaped pressure on stores, with 360,000 jobs lost in retail in the last decade.
“Younger people are just less interested in bricks and mortar, going into a shop and trying things on, because [online shopping] is so handy,” Quinn said.
“And if landlords keep pricing… high rates, it’s just not that conducive to a thriving High Street, unfortunately,” Quinn added.
High-street peers like Miss Selfridge, Dorothy Perkins and Debenhams have already disappeared and become online-only – River Island is just the “latest victim.
Meanwhile, compeyitors Shein and Temu operate on a small-batch, data-led model, which allows them to respond to short-term online trends within a very short time frame.
Improvements in shipping mean that packages can be shipped in a matter of days, if not hours – Amazon recently announced billions of investment into same-say shipping facilities in the UK.
At the other end of the spectrum, widespread premiumisation in retail has pushed prices for sustainable and better-quality goods up and made flagship stores ever-more important, putting the mid-market, shops-on-every-high-street model under threat.
It all combines to create what RBC analysts have called the “hollowing out” of the mid-market in retail.
“The High Street is really suffering, there are… great swathes of empty premises across the high street,” Quinn said.