Problems in the Retail Industry in the UK
Tony Supperstone, Vice President, R3; Consultant, BDO Stoy Hayward LLP, Birmingham
The retail business has to be one of the most cut-throat industries in the world. In 2005 and already in 2006 we have seen well-known names going to the wall. Year after year, we are called in to advise companies in the autumn and, year after year, they say that their problems will be eradicated by a good Christmas. This may be a little naïve.
R3 (the association of business recovery professionals) thinks it is such a big issue that a major part of our 2006 annual conference will be devoted to the retail industry. We will examine failures and also look at turnarounds and find out how they have been dealt with in each case.
In terms of high street names, one only has to look at Marks & Spencer, which seemed to be in free fall in 2004. Once a business as vast as this starts struggling and the papers keep talking about their problems, it becomes increasingly difficult for it to pull out of the decline. Shoppers desert the stores which then become over-stocked and the only way that they can sell the stock is to have a sale which leads to further losses. Stuart Rose seems to be introducing new strategies and the publicity has improved considerably as, it would appear, did the Christmas trading. The morale of the business is good and staff can see that someone is in control and determined to turn the business around and take it back to its original position as the leading retailer in the UK.
So, going back to the earlier point, why are businesses naïve in thinking that a good Christmas will sort out all their problems? Business restructuring professionals have to explain to owners that there are other significant factors to take into account such as the overtime they will have to pay staff over that period, the rents due on 25 December, and the amounts due to suppliers for the substantial quantities of stock delivered pre-Christmas.
I heard recently about a company which had been forced into administration just after Christmas – the reasons were fairly classic but, unfortunately, they had not taken advice early enough and were left with no alternatives. It was a long-established family business which had not kept pace with the times – the shops looked old-fashioned and their competitors who, in many cases, had shops in the same high streets were miles ahead of them in terms of stock and brand. The 71-year-old sales director was on a cruise at the time the balloon went up and he might have been better advised to have stayed there!
Administration is a tried and tested option for companies in the retail trade because it gives the administrator time to assess all the options and to close the poorly performing branches. Landlords cannot take action against the company and a neat package can be presented to potential purchasers who know that they will not have to take on onerous leases which they do not need. This may go some way to explaining why so many high street names have been in the press lately, seeking the protection referred to above. Consider Alders,
Courts, Unwins, Ciro Citterio, All Sports, Past Times, Furnitureland, World of Leather and New World of Leather, Klaussner, Eisenegger, Kookai, Gadget Shop. Just to name a few.
Get instant access to this issue for only EUR 145 / USD 190 / GBP 125
If you are already a subscriber log In here