Tom D'Arcy

Is retail heading for even tougher times?

The retail sector has gone through significant transformation over the last decade with the introduction of new technologies, new business models, intensifying competition and increasingly sophisticated consumers which have all contributed to a changing landscape in the industry.  Volume discounters and low-cost chains now dominate the market whilst established household names have found conditions more and more challenging.

The rise of internet shopping has increased consumer choice and with the digital world rapidly becoming the shopping forum of choice, does this mean the end of the high street?

Traditional retail business models have also suffered as a consequence of higher rent and business rates, minimum wages increases and the fall in the value of sterling contributing to higher costs for imported goods.  Retailers have struggled to pass these costs on to customers through price increases in an environment when consumer spending is stagnating due to a squeeze on household income.

Whilst the sector saw record sales on the last Black Friday, sales over the traditionally busy Christmas period were for many retailers unexpectedly poor.

The latest high street names to report difficulties include Debenhams which has lost 90 per cent of its share price amid £491.5million losses and has announced plans to cut 4,000 jobs, along with 50 of its 165 stores. Asda, which has fared better than some of the major supermarkets, is considering axing 2,500 jobs. Marks & Spencer whose fortunes have gone up and down over recent years continues to struggle and will shut 100 shops by 2022. While there is a rescue deal on the table for HMV it still leaves 2,200 jobs at risk.  Even Primark, usually the most resilient of UK fashion chains has been hit.  In December 2018, it warned that trading was challenging in a tough retail market.

This follows a multitude of household names falling into insolvency during 2018, Toys R Us and Poundworld being among the first casualties then House of Fraser then going into administration in August 2018.  There have also been a number of high profile retail Company Voluntary Arrangements (CVA) including New Look, Mothercare, Carpetright, Jamies Italian to name but a few.  The British Retail Consortium estimates that as many as 85,000 retail jobs were lost in 2018.

So, what can retailers do to help them weather the storm?

Those retailers that are likely to survive are those that have truly embraced a multi-channel approach, with a strong online presence coupled with a unique customer experience in their bricks and mortar outlet.

If further steps have to be taken, a CVA could provide a company with an opportunity to restructure, perhaps to reduce costs by closing an underperforming part of the business, reduce staff, terminate or at least re-negotiate onerous contracts.  We recently reported on the increase in popularity of CVA’s and how they could be used with negotiations with landlords. Whilst a CVA can help with survival, that is quite often, all it is, with CVA’s buying the company a bit more time before eventual administration such as in the cases of BHS and Toys R U.

Tom D’Arcy,  White Maund, said “CVA’s can be an effective tool to help reduce costs and stabilise a company but taking advice as soon as difficulties arise will give a CVA the best chance of success”.

If you would like to learn more about CVA’s and whether they would be right for your company, please do get in touch.