Carpetright has confirmed plans to close 92 stores, with the potential loss of 300 jobs, in a restructuring process designed to stave off administration.
Shares in the UK’s biggest carpet retailer fell sharply 16% to 35p as the company said it wanted to move out of almost a quarter of its 409 stores in September.
It will also be asking landlords for rent reductions of up to 50% on 113 more sites under a company voluntary arrangement, a process designed to stave off insolvency and which must be approved by its creditors.
Completion of the CVA will be dependent on Carpetright also raising £60m in new funds from shareholders in order to reduce debt and cover the cost of the restructure. It also needs to secure £15m in short-term funding from its banks to cover immediate costs.
Carpetright, which has a UK workforce of 2,700, has issued a series of profit warnings in recent months, sending its shares sharply lower.
The company said the closures were necessary to “restore the viability of the group’s business model” as it struggles to survive amid a slowdown in the housing market and a squeeze on consumer spending which has dampened demand for expensive household goods.
It has also faced increasing competition, particularly from the Tapi chain set up by Carpetright’s founder, Lord Harris, and his son. Harris left Carpetright in 2014.
Several major retailers have fallen into financial difficulty as they battle with rising costs, from business rates and an increase in the legal minimum wage, as well as a shift towards online shopping.
Carpetright’s troubles come a few weeks after fashion chain New Look, advised by Deloitte which is also advising the carpet retailer, won approval for a CVA that involves the closure of up to 60 of its 593 stores and rent reductions on dozens more.
The baby goods retailer Mothercare is thought to be considering a similar move while Toys R Us pushed through a CVA before going bust earlier this year. The toy retailer said on Thursday it would close its remaining 75 stores by 24 April with the loss of more than 2,000 jobs.
Carpetright said trading “remained difficult” and it expected to make a small loss for the year to the end of April. The company intends to provide further detail a few days after creditors vote on the CVA proposal on 26 April.
Wilf Walsh, the chief executive of Carpetright, said: “These tough but necessary actions will enable us to address the burden of a legacy UK property estate consisting of too many poorly located stores on unsustainable rents and are essential if we are to restore our profitability and deliver a successful turnaround. He said that getting rid of unwanted stores, most of which were signed up on 25-year leases in 1990s and early 2000s under previous management, would enable Carpetright to focus on improving the service and environment in its remaining outlets.
“Completion of the CVA and equity financing will enable us to establish an appropriately sized estate of modernised stores on economic rents, complemented with a compelling online offer, enabling Carpetright to address the competitive threat from a position of strength.”
Walsh said he was “committed to the project” of seeing the turnaround through. “I don’t think now would be the time to bail,” he said.