Restructuring retail: Lifeline or legalised pause button?

Store closures, rent cuts, and creditor cramming – restructuring plans have become a familiar headline in UK retail. But beyond the legal jargon, questions are mounting: Are these plans really turning businesses around, or simply buying time? And is the sector offloading its problems onto landlords, rather than fixing what is broken?

River Island is the latest high street name to turn to a court-approved restructuring plan, echoing a broader trend in how UK businesses handle financial distress. It marks a shift away from company voluntary arrangements (CVAs), which had been popular prior to 2020 and used by retailers to restructure their debts and limit commercial rent liabilities. However, as landlords grew increasingly hostile to CVAs, often challenging them in court, they began to fall out of favour.

Restructuring plans, introduced in 2020 under the Corporate Insolvency and Governance Act, intended to fill that gap. Aligning more closely with the US’ Chapter 11 process, they allow companies to reorganise debt under court supervision, and bind dissenting creditors if the court deems the plan as fair. Their introduction was welcomed, particularly in the wake of the pandemic, which had caused widespread financial strain on the retail sector. It answered the call for a fast-track rescue tool for viable businesses experiencing short-term liquidity problems.

Landlord mistrust and job losses contrast legal stability and court assessment

Still, concerns over their use are growing, particularly in regards to the fairness of the tool. In River Island’s case, creditors, including landlords, had initially rejected the proposals, which included the closing of 33 stores and rent cuts across an additional 71. One is even said to have sought legal advice ahead of the court hearing, as a similar process underway at Poundland also presented cause for concern. No formal objections were raised in court, however, and the plan was approved.

While indeed the process of a restructuring plan may seem unfair to some, there are benefits to their implementation. According to Lucy Trott, managing associate at Stevens & Bolton, the court plays a key role in assessing whether creditors are better off under the plan than if the company were liquidated. “Where dissenting creditors are being ‘crammed down’, their position is actually improved – or at least not worsened – by the plan,” she said.

Yet, as restructurings may offer a legal route to survival, it often leaves behind a trail of job losses and empty shop fronts. Poundland, whose restructuring plan is due in court soon, has already confirmed 68 store closures, with up to 80 more at risk. River Island, meanwhile, has already embarked on a redundancy programme across the business, potentially bringing job losses to 200 by the end of the year.

Trade bodies like the British Independent Retailers Association (Bira) have sounded the alarm. “We need urgent support for high street businesses,” said CEO Andrew Goodacre, urging the government to cut business rates and tackle cheap import loopholes. He stated: “It’s deeply saddening to see long-standing high street chains announcing significant profit reductions and facing existential threats. These developments provide yet more examples, if they were needed, of the urgent need to support high street businesses across Britain.”

This sense of urgency reaffirms a need for swift action, though there is a worry that many of these plans offer short-term relief, not long-term solutions. Trott notes that for some, however, a restructuring plan is just one piece of the puzzle to initiate a wider restructuring. She added: “Often a restructuring plan will propose the reduction of commercial rents while the company seeks to reduce its physical footprint, thus reducing its liabilities in the longer term and creating a leaner, but hopefully more profitable, business model going forward. As to whether the plan will fix long-term business problems – the devil is in the details.”

The need for a wider perspective to mitigate long-term problems

Chris Bowers, head of insolvency at Forbes Solicitors, agrees. He warns that without reconnecting with shoppers, these plans risk becoming a “sticking plaster” that simply prolong an inevitable collapse in the near future. He continued: “Restructuring plans concentrate on shutting stores and cutting rents. Such moves support liquidity but stop short of addressing declining sales. River Island’s most recent accounts show turnover fell more than 19 percent. Any form of long-term survival needs to reconnect the retailer with consumers to boost revenues, and quickly.”

For Bowers, River Island’s situation is reminiscent of the demise of Arcadia Group, which restructured under a CVA in 2019 but entered administration just over a year later. “Arcadia’s restructuring focused on cutting the costs of brick-and-mortar stores, which wasn’t enough to fix problems with declining sales,” Bowers said. “River Island executives could learn from this by quickly moving from cost-cutting measures to now finding relevance with shoppers to drive vital sales.”

There are signs of change, however. Upon its acquisition of Poundland, Gordon Brothers set out to realign the business with consumer demand. Next to store closures, the US firm detailed plans to wind back certain categories, like frozen foods, and invest more in womenswear and seasonal products. Both divisions are now expected to return under the guidance of an in-house team following the restructuring.

The details of River Island’s future plans are yet to be publicly shared, and the retailer’s management team have previously shared that it had been struggling to retain relevance among its consumers as competition heightened. Trott noted, however, that while restructuring plans are focused on finances, as part of the process, the company will likely have a turnaround strategy to improve sales which are not captured in the plan, but instead move behind the scenes.

Other retailers are also adapting. New Look has pledged digital investments after liquidating its Irish arm earlier this year, while Quiz offloaded part of its business to protect retail jobs after closing stores following its descent into administration. Where River Island goes next has not been made public, but the company has admitted it’s struggling to compete with fast-moving, low-price players like Shein and Temu. “It follows that the recovery plans for the company is likely to involve a greater push towards online sales, which will enable the business to adapt more quickly to changing trends, but this is not a feature of the restructuring plan itself that would have been publicised as part of the court process,” she noted.

Restructuring plans are not a silver bullet, nor are they inherently flawed. They offer vital breathing space and legal-backing, but risk becoming a go-to fix for deeper issues, from changing shopping habits to digital underinvestment. For the high street to truly recover, cost-cutting needs to be matched with innovation, with a renewed focus on what today’s consumer actually wants.