Greeting card company, Paperchase seeks restructuring advice.
21/01/2019.
Greeting card company, Paperchase is reportedly in talks with restructuring experts to draw up plans for multiple store closures, becoming the latest major British retailer to do so amid a challenging year for the high street. Earnings and footfall have plummeted in recent years, as e-commerce continues to disrupt brick-and-mortar retail and harm profits, compounding the effects of cost burdens including rising business rates and increased minimum wage pay obligations.
The greetings card chain is said to be seeking advice from KPMG on restructuring options, including the possibility of a company voluntary arrangement (CVA) which would allow for some of the retailer’s 130 UK stores to be shut down. Financial reports filed by Paperchase in late 2018 showed a pre-tax loss of £6.3m for the year to February, with profits dropping 50% from £9m to £4.5m in 2018. Online sales meanwhile were up nearly a third (29.5%), underlining a period of dramatic shifts in business trends.
High street retailers hit by business pressures
In September 2018, Paperchase had its credit insurance reduced amid concerns regarding its finances, despite parent company Primary Capital injecting £4.5m into the business to repay debts. The company is only the latest to be affected by e-commerce disruption, rising wage costs and business rate hikes, with dozens of others entering administration and announcing major cutbacks and store closures last year.
Controversial CVAs remain an option for retailers
Retailers including House of Fraser, New Look, Marks & Spencer, Carpetright and Maplin all embarked on restructuring last year, with many choosing company voluntary agreements. The agreements, which allow businesses to negotiate with creditors to continue trading, are favoured for their flexibility, but have been criticised by commercial landlords for unfairly shifting the burden of failing retailers onto property owners.
Credit management systems vital
For those falling into debt, consulting expert advice on financial restructuring is a must. Before that however, companies in the retail sector seeking to insulate themselves from the risks posed by a challenging economy must fortify their credit management strategy and ensure they have as much of a cash cushion as possible to absorb cost burdens and earning losses.
Companies selling to retailers likewise need good credit management systems in place to control their exposure to this sector.
CPA can help you put in place the systems you need.
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