Cantillon: rents becoming key in examinerships

When Clerys shut its doors abruptly, David Jones, the managing director of Best menswear was one of the big losers. Holder of the men's fashion concession in the department store, he had around €500,000 of stock locked in.

“It will be difficult but we will fight our way out of this,” he said at the time.

And so it has proved. Filing for examinership on Monday, Best said said the €270,000 hit it took as a result of the closure of Clerys was a key element in the tide of woes undermining the business.

But it wasn't the only one. The group, Ireland's largest independent menswear chain, acknowledged it had been struggling on two fronts – slowing sales and commercial rents.

Despite Ireland’s recent economic recovery, consumer demand remains fragile and losing the cashflow from one of its largest outlets will have done nothing to improve Best’s position on the former.

Just 24 hours later, the largest player in the Irish maternity, baby and nursery retail sector, Mothercare Ireland, trudged into the court with the same legal counsel to seek permission for the appointment of the same interim examiner to address fundamentally the same issues.

In its application, Mothercare was blunt on the issue of commercial rents. As a result of a rapid expansion of its business during the boom years, the rents it is paying significantly exceed current market rents, the court was told.

Renegotiation and repudiation of rents will be a significant aspect of the examinership process, it added.

In the first six months of the year, 77 companies in the retail and wholesale sectors have been declared insolvent, according to figures provided by Vision-net.ie – one in seven of all company failures in that period. A recurring theme in many of those has been the crippling impact of high rents. Retail Excellence Ireland yesterday exhorted landlords to show flexibility on rents or face further closures of businesses in their premises.

The problem, of course, is that many of those commercial landlords bought their properties in the boom years at the frothy prices that then prevailed. They need the current rents to meet their repayments and their own lenders are not likely to look favourably of default by virtue of accommodating their troubled tenants.

Both sides are aware of the other’s difficulties and examinership is becoming the necessary forum to allow landlords step back in a manner that allows them defend their own position with lenders. It’s a long way from what the process was designed to achieve but the chances remain strong that Best and Mothercare will secure the necessary reductions to allow them continue in business.