Supercuts: why the hairdressing chain has entered administration
With over 200 salons and 1,400 employees, Supercuts went into administration this week. We look at why this has happened, what a CVA is, and what administration means.
Supercuts (which is owned by Regis UK) has been struggling for the last few years. Last year, Regis had warned that a “perfect storm” of factors (including falling customer numbers and higher wages) had hurt the business, leading to “cash flow issues.”
On top of this, the rise in the legal minimum wage rate, the apprenticeship levy, higher business rates and an increase in the cost of product as a result of the Brexit-led fall in the value of the pound, would also be likely factors.
In 2017, Regis UK was sold by its American parent to global salons operator called the Beautiful Group, which is backed by a US private equity firm called Regent. Its most recent accounts show the business making a loss of £5m on sales of £65m in 2017.
To battle against its issues, the company embarked on a restructuring process called a company voluntary arrangement, or CVA.
With the CVA law on its side, it demanded its landlords to reduce their rent bills, including asking the landlords of more than 20 of its salons for free rent, as well as cuts to all the others.
Two of the four largest land owners in the UK (British Land and Hammerson) has mounted a legal challenge to overturn the company’s CVA and the outcome of this is yet to be decided. Rob Harding, joint administrator at Deloitte, said:
“Unfortunately, these trading challenges, coupled with the uncertainty caused by the legal challenge to the CVA have necessitated the need for an administration appointment. This is in order to provide protection for the business whilst restructuring and sale options are fully considered and explored.”
Administration (which is different to liquidation) is a process of creating a legal ringfence around a struggling, insolvent company to prevent further threats to its creditors (which includes the salons’ landlords, its suppliers and its staff).
To do this, it appoints an administrator (in this case the accountancy firm Deloitte) who will need to establish whether the company could remain viable (i.e. could become profitable again). Deloitte will then establishes a timeframe for the administration and implement further restructuring measures to improve the company’s position (which in this case includes looking for a buyer).
Update | what happened in the end
We’re happy to report that the Supercuts and Regis hair salon brands have been rescue after a deal was struck with the administrators.
The Bushnell Investment Group (led by the entrepreneur Lee Bushnell) made an investment in support of a management buyout by agreeing to buy 140 of the 200 outlets. The deal involved the closure of 60 sites (although these had all either shut during the administration or had since been closed, with the loss of 200 jobs) but under the deal, more than 1,000 workers have been retained.
Matt Cowlishaw, joint administrator at Deloitte, said: “We are pleased to have concluded the sale and for being able to preserve a significant number of jobs at two well-known brands.”