Melite stores reopen but COVID-19’s impact on sales starts to bite

The Melite retail group has given notice of its forthcoming bondholders meeting to win approval for a restructuring plan that includes a reduction of its bond interest rate, after the COVID-19 pandemic’s retail shutdown in Italy led to a rescission of its shop leases.

The Maltese retail group – owned mainly by the Alf. Mizzi Group and Lidsdale Limited – holds some 26 leases in the north of Italy for retail stores of the globally known Accessorize and Calvin Klein brands. The company does not hold the franchise for Malta stores.

The high street fashion franchise suffered a massive business disruption in its main Italian markets due to the pandemic’s retail shutdown. Since lifting of the forced closure of retail stores across Italy, 18 out of 26 Stores were reopened.

Melite plans to preserve the majority of its property rights. “The plan is designed specifically to salvage those stores, around 17 out of 26, which, based on advice from commercial real estate specialists, are expected to be more likely to be sub-leased – mainly as not located in the harder-hit shopping centres, but in city-centre locations – and to attract the higher margin be-tween the pre-COVID-19 value of the property rights and the annual rent payable to landlords,” Melite said in a company statement this week.

Melite has so far maintained regular payment of rent to landlords despite the retail downturn, and is in discussions with potential new tenants. “Management has sub-leased one store (Via Luini, Como), and has received enquiries with respect to its remaining stores. Negotiations re-main ongoing… management is hopeful of completing a reassuring number of such deals in Q3 and Q4 2020.”

Melite’s directors said the decision to reopen stores was more practicable since the likelihood of finding new tenants was greater if the stores are operational and stocked, rather than vacant and less accessible.

The harsh effects of the COVID-19 pandemic have hit Italy hard. Melite said that indications are that retail sales have so far contracted by 25% in the case of best-performing retailers, and by as much as 85% in others.

“Melite Properties’ tenants, all of which operate in the retail sector, have likewise been severely negatively affected, resulting in such tenants being unable to maintain rental payment obligations at the rates prevailing [at the start of] 2020.”

Melite said the situation is not expected to improve and remains uncertain right up into 2021 due to extremely limited tourism, office employees working from home, and a fear of infection.

“As a result of this and the continued and possibly worsening effects of the COVID-19 pandemic, the company is not in a position to assess, with a significant degree of certainty, when, if at all, the performance of its business may return to pre-pandemic levels,” Melite said.

The company has secured €449,000 from the Malta Development Bank’s Covid Guarantee Scheme to meet its interest payments for its €9.25 million bonds.

While shareholders will inject €1.1 million into the company, Melite has yet to achieve bondholders’ approval to reduce the bond interest rate from 4.85% to 3.5% as from November 2021.