Paperchase must look beyond store closures, GlobalData

Paperchase is using a CVA to negotiate rent reductions and restructure its store portfolio, but it must do more in order to survive and thrive, according to Zoe Mills, UK Retail Analyst at GlobalData.

“It has been plagued by the growing presence of value retailers and general merchandisers in the market with the likes of B&M, Poundland and Flying Tiger Copenhagen all expanding their ranges and taking a more fun and design-led approach, while also undercutting on price,” she comments.

“Paperchase must do more than cull a small number of stores from its portfolio of 145 after a poor profit performance in 2018, which saw its EBITDA fall 50.8% to £4.5 million in FY2017/18. The premium specialist must reduce the number of SKUs to allow focus on its stationery proposition and reconnect with its core customer, to generate loyalty among shoppers who are typically trading down,” Mills concludes.

Will Wright, KPMG’s proposed supervisor of the CVA, notes that, like many other businesses in the retail sector, Paperchase has been adversely affected by a variety of issues, including a reduction in footfall, increased rents and business rates, and margin pressure from sterling depreciation.

"We believe that the CVA gives the company the ability to rationalise its store portfolio by exiting stores that are unprofitable, secure rent reductions where stores are over-rented and implement turnover rents to reflect the highly seasonal nature of the business,” he says.