The UK High Court has approved closure of 33 stores of River Island across the country as part of the company’s restructuring efforts to avoid insolvency.
Citing a customer shift to online shopping and rising operating costs as reasons for its multi-million pound losses, the fashion retailer had warned creditors it could run out of cash by the end of August if the plan was not approved.
In addition to the store closures, the company will seek rent reductions at 71 other locations. According to Ben Lewis, CEO, River Island, the plan will enable the brand to align their store estate to customers' needs. The company also plans to eliminate approximately 110 of its 950 head office positions, a move expected to save about £8.1 million. The retailer currently operates 223 stores across the UK and Ireland, with no closures planned for its Irish locations.
River Island’s barrister, Matthew Weaver KC, told High Court the company had already closed seven unprofitable stores this year. He emphasized, the proposed restructuring was the only viable alternative to insolvency. The company's most recent accounts showed a full-year loss of £33.2 million on the back of a 19 per cent decline in sales. Weaver also noted, River Island was projected to be unable to pay its debts by late August or early September, with a shortfall exceeding £43 million.
Industry analysts suggest, River Island has struggled to keep pace with evolving consumer tastes and lacks a striking brand identity. Charles Allen, Analyst, Bloomberg, notes, the company is suffering from issues common to many UK retailers, including the decline of in-store business and higher costs exacerbated by increased National Insurance Contributions.
While the restructuring provides a temporary reprieve, Nick Sherrard, Label Sessions cautions, simply cutting costs won’t guarantee long-term success. River Island is a much-recognized brand. However, it's not the same thing at all as being a beloved one, he says.
With the restructuring in place, River Island is forecasting a modest 1 per cent annual growth for the next five years.
