Radical retailer restructurings are becoming the norm

Retailers are being squeezed from both sides. On the cost front, post-Brexit inflation, rising input costs, and the April hike in employer national insurance contributions (NICs) have eroded margins, particularly for smaller firms without the scale to automate or absorb the pressure. Meanwhile, retail sales suggest a mixed outlook. Total sales increased by 3.1% year on year in June, according to the British Retail Consortium (BRC). More broadly, the UK’s economic recovery is fragile, and consumer confidence remains volatile due to fears over personal tax rises and inflation. This uncertainty has driven cautious spending, suppressing growth and complicating restructuring outcomes.

Several pivotal creditor votes scheduled for August have triggered further store closures and rent concessions. The NIC hike has compounded longstanding cost burdens – from wage inflation and business rates to supply chain reorganisation, regulatory change, and rising demands around digitalisation, automation, cybersecurity, and sustainability. Many SMEs cannot absorb the growing cost and complexity, accelerating the need for structural reset.

Poundland and River Island

Turnaround investors and private equity firms are actively targeting retailer distress through radical restructuring plans and operational resets. Poundland and River Island are two prominent examples of court-supervised restructurings aimed at addressing acute financial distress, driven by rising costs, competition, and shifting consumer habits. Both plans propose store closures, lease renegotiations, and cost-cutting, and will be put to creditor votes in August. They illustrate the broader trend of court-assisted restructurings shifting the burden of reset onto landlords.

Poundland: bold rent-free proposal

Poundland, acquired by Gordon Brothers in June for a nominal €1, is undergoing a sweeping operational reset after years of underperformance and a 6.5% decline in revenues over the six months to March 2025.

Gordon Brothers, the specialist global distressed investor, has pledged up to £80 million in financing to support Poundland’s turnaround. Central to the plan is a bold proposal to reduce rent to zero on up to 250 underperforming stores. As of mid-August, 52 of 68 planned store closures have been identified, with a High Court hearing scheduled for 26 August.

Poundland’s plan presents a dilemma for landlords: accept temporary rent-free terms or risk a full administration that could trigger widespread closures across its 800-store estate. For landlords with significant exposure, short-term concessions may be preferable to deeper losses from a collapse.

Gordon Brothers is also seeking rent cuts of 15-75% across dozens more locations to ease fixed cost pressures. Supplier confidence has weakened, with major brands – including Nestlé, Procter & Gamble, and Unilever – reportedly tightened credit terms, creating stock shortages. With over 2,000 jobs at risk, the success of the plan hinges on landlord and supplier cooperation.

River Island: a profit-sharing model for creditors

On 8 August, the High Court approved River Island’s restructuring proposals, allowing the retailer to impose the plan on dissenting landlords and other creditors. The ruling allows River Island to avoid collapse, cut costs through closures and rent reductions, and secure new financing, although risks remain if sales and market conditions fail to improve.

River Island will close 33 underperforming stores by January 2026 and reduce or suspend rent on up to 71 additional sites for up to three years. The ruling enables a £40 million loan from Blue Coast Capital, owned by CEO Ben Lewis, River Island’s largest creditor. The retailer also reportedly proposed a profit share fund for unsecured creditors to balance recovery with survival, potentially easing stakeholder concerns.

The plan was enforced using the ‘cross-class cram-down’ mechanism, with only around half of creditors in support. River Island warned that it faced administration within weeks without the plan, citing unsustainable cost pressures from supply disruptions, rising energy prices, wage inflation (including NICs), and declining footfall from online shopping. The ruling prioritised business rescue over creditor interests, pushing losses onto landlords and likely encouraging other retailers to pursue similar restructuring paths. 

Avalanche of costs bearing down on retailers

Retailer distress intensified in August, with a surge in store closures and restructurings driven by soaring costs and weakening sales. Additional closures were announced by Hobbycraft, Game, Monki, New Look, The Original Factory Shop (TOFS), Holland & Barrett, and Superdrug.

The most notable new failure was Claire’s Accessories, placed into insolvency in mid-August after failing to find a buyer for its UK and Ireland operations. The chain operates 278 UK stores. Hilco Capital reportedly pulled out due to the scale of challenges, Sky News reported. The retailer has been hit by currency volatility, tariffs, labour shortages, and rising transport costs.

Claire’s UK division reportedly posted a £4 million pre-tax loss in the year to February 2024 and faces a £355 million loan maturity in December 2026. Its US operations filed for its second Chapter 11 bankruptcy in early August. The retailer was taken over by creditors, including Elliott Management and Monarch Alternative Capital, after its first bankruptcy in 2018.

Retailers are also bracing for business rates reform in the autumn budget, with plans to introduce a surcharge on larger retail properties to fund relief for smaller businesses. Under current rules, retail businesses receive a 40% rates discount (capped at £110,000), costing the Treasury £1.7 billion annually. From April 2026, this will be replaced by a lower multiplier for properties valued under £500,000, funded by a surcharge on higher-value stores, effectively shifting the burden onto anchor tenants and larger-format retailers.

While intended to support smaller retailers, larger operators warn the policy may backfire. Marks & Spencer warned the change could close 111 stores. Penalising anchor tenants who drive footfall and support surrounding retail risks a ‘false economy’, accelerating distress rather than supporting recovery. The new threshold could force retailers to rethink store portfolios and investment plans, harming communities by cutting jobs and footfall.

The policy also threatens over 100 large supermarket closures. Around 50 of Sainsbury’s 600 supermarkets would become unprofitable under the new charges, reports the FT, while Tesco and Morrisons could each see “tens” of supermarkets turn lossmaking.

Conclusion

Further retail restructurings and CVAs in the second half of 2025. Choosing the right approach requires forensic attention to funding, leases, and stakeholder priorities. Begbies Traynor Group is well placed to support both retailers and private equity owners of distressed assets in navigating the full range of restructuring and recovery options. If you would like to discuss your circumstances in confidence, please get in touch.