The growth in ecommerce, the much-discussed high rents and business rates, combined with lower high street and retail park footfall and rising wage costs have created the perfect storm in our industry – one that is proving very challenging to weather.

To some degree these elements are out of our control, however, as retailers, we have perhaps compounded this storm over the last decade by chasing retail space in the pursuit of sales – a race for space – without fully considering the optimum property portfolio or appreciating the impact of fast-changing macro trends.

When I became CEO of The Original Factory Shop (TOFS) in summer 2017, it was clear that change was necessary, for both the customer and the balance sheet, if we were to remain a presence on the high street.

“A CVA cannot be viewed as a quick fix to lower rents. It must be part of a long-term strategic plan”

We were established in 1969 and 50 years on I firmly believe we still have a purpose and unique position in the value retail sector; the smart and convenient choice for local customers, delivering a great shopping experience with the thrill of a bargain to local communities across the UK.

It was in that context we undertook to refinance the business in spring 2018, to give TOFS the best chance and put the business on a stronger financial footing.

This period was one of the most difficult I’ve ever experienced. Alongside a write-down of debt shared among owners and lenders and a much-needed cash injection from our owner, we undertook a CVA.

Business purpose

This course of action – closing unprofitable stores – is a difficult one for any CEO as the consequences of redundancies and redeployment affect employees, their families and communities. We only took this route in the belief that we had a longer-term strategic plan for TOFS and it in turn still had an important role on the high street.

A CVA cannot be viewed as a quick fix to lower rents. It must be part of a long-term strategic plan with the belief in your business’ purpose at the heart.

It should form part of a wider restructuring that includes a proactive reduction in the debt structure so that whatever external factors are experienced there is an ability to weather the storm.

“We have a responsibility to our colleagues and communities to do the right thing to save the business in the longer term”

You also need confidence that there are a robust turnaround plan and a strong management team capable of delivering it at pace.

In the words of Albert Einstein, the definition of insanity is doing the same thing over and over again and expecting different results. This seems particularly apt for our sector as we face some of the biggest structural changes ever.

Should CVAs be more regulated? The bigger question for me is a more moral one.

We have a responsibility to our colleagues and communities to do the right thing to save the business in the longer term. Taking the CVA route is not done lightly.

“We have 167 profitable stores, 2,000 employees and 1.7 million members of our TOFS loyalty club. Our half-year EBITDA is double that of last year”

You need the support (and votes) of your creditors, including landlords and suppliers, as well as regular communication with all stakeholders. Additionally, our lenders and private equity backers were also prepared to take the pain because they believed in our long-term strategy and the viability of the business.

Keeping employees in the picture is key. Sitting on market town high streets in the heart of local communities, our store colleagues deliver a truly local service which is recognised by customers.

We embarked upon a proactive and transparent communication plan with all colleagues to explain the process and help them understand why we were doing this. The harsh reality is shops will close and jobs will be lost, and you don’t always have control over which shops as the compromised landlords have the right to serve you notice.

This is why it’s so important to keep employees informed and involved; helping build trust and understanding of the business’ long-term plans.

The right decision

We look back and agree this has been a challenging year, however, our turnaround plan is on track and we enter this financial year in a fundamentally healthier and stronger position.

We have 167 profitable stores, 2,000 employees and 1.7 million members of our TOFS loyalty club; our half-year EBITDA is double that of last year.

Our turnaround strategy, ‘Journey to Growth’, focuses on our heritage as the ‘original’ discounter, offering brands at up to 70% off RRP for our local community customers in market towns, many of whom find it difficult to travel to larger towns and cities.

We have taken the business back to its roots, strengthening our clothing offer with more cut-label products and brands, and now offer a greater convenience range across grocery and pet. We’ve also introduced new celebration and party ranges in 25 stores. These are part of our strategy to weather-proof the business while serving the needs of our customers and offering them greater choice.

As I look to the future, I feel confident that the decisions we made were right for the business, but it’s also the trust and hard work of the team that has been fundamental to our success.

TOFS sales fall but boss heralds CVA for improved profitability