Quiz Clothing on Wednesday said it was “restructuring” its standalone retail store portfolio and has appointed administrators. The move has been taken "to protect the future" for the company as a whole with Blair Nimmo and Alistair McAlinden of KPMG running the process.
But only its wholly-owned subsidiary Kast Retail Limited, which runs its 82 standalone stores in the UK and Republic of Ireland, is going into administration. And the parent company is proposing to acquire the Kast “business and certain assets” for £1.3 million in cash.
This should “enable the group to operate an economically viable store portfolio alongside its online, UK concession and international channels, which are unaffected by today's announcement”. However, the firm’s Spanish business (Kast Spain) will “no longer be under the group's control, and the group will cease to provide services or support to [it]”.
The firm “continues to believe stores, with appropriate property costs and flexible lease terms, can be a relevant pillar in Quiz's omnichannel model”.
It will clearly relieve the pressure on the company, although it's likely to be unpopular with its landlords. And previous critics of pre-pack administration deals are also likely to be unhappy about the move. But its leaders are on board. The quiz said that “there are no sums due by the group to its bankers under its bank facilities and those bankers have not objected to” Kast’s plans.
The options for the listed company are limited at present and it's understandable why it has decided to follow this route. Its standalone stores have seen “increasing trading pressures" due to the lockdowns in the UK and Ireland. But they've also been affected by the longer-term shift to online shopping, rising rents and business rates, and Brexit-linked uncertainty.
The company said its store's estate “is not financially viable in its current structure”. In the year to March 31, Kast's revenue was £84.6 million with a pre-tax profit of just £212,000.
So what happens now? Zandra Retail Limited is the entity that will acquire the Kast assets and parent firm Quiz will provide Zandra with the funding.
None of the leases associated with the standalone stores will transfer to Zandra, but the employment contracts of 822 of Kast's 915 employees will be taken over. That means nearly 100 job losses for now.
The lease arrangements for “the majority of standalone Quiz stores” will be renegotiated “where appropriate leases can be secured on a flexible basis with rents commensurate with revenues generated”.
It's unclear how many shops it will eventually operate as we don't yet know how many landlords will be prepared to offer lease deals on favorable terms. But we should assume that the number of shops will close.
The warehouse facilities will continue to be available, which is key given that its website is going to become even more crucial to its future.
The big question is whether the company will have enough money to operate from here. It said that as of June 9, it had nearly £6 million of cash available to it and additional bank facilities of £1.75 million that expire on July 31. But it’s in talks about securing a longer-term bank facility.
CEO Tarak Ramzan said: “Physical retail in the UK was facing a major structural challenge prior to the outbreak of Covid-19 with the economics of operating stores on traditional leases becoming increasingly difficult. We continue to believe that stores, with appropriate property costs and flexible lease terms, can continue to be a relevant pillar in our omnichannel model and we will be seeking to reopen Quiz stores where we believe it is prudent and economic to do so.”