Wednesday, 14 January 2009

The Icelandic effect shows no signs of thawing

Fashionista has been pondering how the fate of one retailer in particular could change the face of the UK high street more dramatically than any other. As is evident from the recent administrations of a number of Icelandic backed retailers, including Blooming Marvellous, Hardy Amies and Ghost (all owned by Icelandic investor Arev) and from reports that Icelandic fund Kcaj (which owns Jones the Bootmaker, Mountain Warehouse and Aspinalls of London) is also facing administration, those retailers with an Icelandic connection seem to be struggling to find the cash they need to push them through the current challenging trading conditions.

So given this background Mosaic Fashions, which owns the Warehouse, Coast, Shoe Studio, Oasis, Karen Millen and Principles brands, amongst others, and is part-owned by Icelandic bank Kaupthing and Icelandic investor Baugur (also backed by Kaupthing), surely has cause for concern. Recent reports of lower sales and falling profits within the group, not to mention the fact that the group has called in an emergency restructuring team from Deloitte, also indicate that the Icelandic effect may be about to strike at the heart of the UK high street yet again.
Due to its Icelandic connections, the group has been squeezed considerably over the past few months by the withdrawal of credit insurance and reports that suppliers are only prepared to supply stock to Mosaic stores on a cash on delivery basis. In addition, the collapse of Kaupthing has meant Mosaic has lost its key foreign exchange hedge which diluted its profits this year and is likely to have an even more dramatic impact next year.

On the bright side, Mosaic has managed to persuade 85% of its landlords to accept monthly (rather than quarterly) rents, and is in talks with lenders to secure additional working capital. It has also been granted a waiver on interest payments in relation to the £400m debt it owes to Kaupthing. Fashionista worries about the effect it may have on the business if it has to resume payment of those interest payments.

Clearly Fashionista is concerned about the possibility of losing some of her favourite high street brands, but also worries about the impact that this could have on the larger department stores such as Debenhams and House of Fraser, where Mosaic concessions make up a large part of their fashion offering. Despite the doom and gloom, Mosaic says its sales remain above £1bn a year and there is no risk of administration. Fashionista hopes that this is the case -- but only time will tell.