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June 24, 2019

Landlord rent cuts may prevent Monsoon from being wiped out

Troubled fashion apparel retailer Monsoon Accessorize unveils CVA rent reduction plan to offset its difficult financial outlook.

By MarketLine  

Troubled fashion apparel retailer Monsoon Accessorize has asked landlords to cut rent on many of its stores in order to avoid closures and job losses.

High street chain posts £3m in losses

The company operates across the world with stores in 74 countries as of 2014, but the privately-owned fashion brand is based in the UK where it generates most of its revenue.

The retail chain is expecting significant losses of around £3 million this year, falling from £2.7 million profit last year. The company has reached out to the landlord of more than half of its 258 Monsoon and Accessorize high street stores across the UK, seeking rent cuts of between 25% and 65% in order to cut costs and hopefully continue trading.

Peter Simon, the owner of both the business and the company’s London headquarters, has also promised to cut the £5 million HQ rent in half to help reduce costs, in addition to a further £18 million interest-free loan.

Monsoon needs creditor support

The company has entered into a company voluntary arrangement (CVA) which enables it to continue trading without handing the reins over to administrators. However, if its proposal is not backed by at least half of its creditors at an early July vote then there are real risks that liquidation could be the next step.

This would result in store closures and significant job losses if the company was to survive at all. CVA documents seen by several media outlets suggest the company is planning to exit at least seven stores by the end of the year and has access to at least seven short-term leases that could be exited in the near future as a cost-saving exercise.

UK retail market is stagnant, but Monsoon is not entirely blameless

The company is primarily blaming the wider industry, and it is a fair assessment. Many retail markets across the UK have been under intense pressure in recent years due to a combination of increased competition, rising costs and subdued demand in the face of shaky consumer confidence and Monsoon is suffering because of it.

However, Monsoon is not entirely absolved of blame. The company has for many years operated in a fairly niche area of the market, offering somewhat alternative clothing primarily in the form of one-off purchases for weddings, parties and other events. This reliance on occasional sales rather than a steady flow of purchases from a typical customer has left them exposed to a weakening economic climate and luxury purchases such as non-essential clothing is typically one of the first areas of spending that consumers cut back on in times of poor confidence and stagnant wages.

Monsoon has been able to acquire and maintain a unique market position, which is admirable. Its reliance on a relatively small demographic making occasional purchases has, however, left it exposed to a changing economic climate, and serious measures must be put in place to avoid collapse and job losses in the future.