There’s a cast iron tradition woven into the fabric of the UK psyche; over the holiday period we get together after the main two days have passed and moan about the rubbish that was on television. Moving aside the fact every news broadcast is occupied for the first fifteen minutes with tedium regarding what the UK royal family are up to, the media failing to point out that shooting on their several hundred acre estate during Boxing Day is their preferred ‘party game’, the overall schedule is full of repeats and old films which hardly merits the purchase of that 50″ plasma television without which your life and Xmas won’t be complete.
However, there is one other repeat that the mainstream channels never tire of; reporters in various shopping malls counting the footfall and interviewing shoppers and outlet store management. It’s always the same tired story, retail managers swear how great their stores are doing and giddy shoppers, who can’t bag a wild animal with a shotgun on Boxing Day, rejoice in the bargains they’ve just bagged with their fantastic laminated rectangular pieces of plastic.
In the USA 70% of the economy is consumerism, the UK is quickly approaching this level, naturally channels with political leanings will therefore be under orders to stoke up a feel good factor. The ‘bigging up’ of retail as a quasi religion at every turn did however backfire spectacularly during one sojourn by the BBC; turning to a small business woman in Covent Garden London the cheerful interviewer asked how business was, the woman replied “dire”, she’d only sold two items in the morning and overall her business sales were down half vis a vis the direct comparison with last year. The interviewer had no answer, this interview wasn’t in the pre-ordained script and the metallic clatter of pins being dropped on the BBC studio floor could be heard via those 50″ plasmas throughout the UK..
There were a couple of significant potential retail bankruptcies in the UK pre the Xmas shopping period which raised eyebrows in the financial sector, particularly amongst retail analysts. It wasn’t that the failure of these businesses came as a shock, selling shoes at the lower end of the retail market or lingerie is a business model prone to the economic weather, moreover it was the sudden drying up of alternatives to administration that should be raising alarm bells, not just in the retail sector but from a wider perspective. The businesses in question were Barratts and La Senza.
This is second time Barratts shoes have gone into administration in the past two years. The lazy media narrative will suggest that it’s become the latest victim of cut-throat competition on the high street and that its failure to adapt to web retailing has caused its demise. It was forced to call in the administrators on Thursday 8th December, threatening almost 4,000 jobs as Christmas loomed. Barratts has 191 shops, including one on Oxford Street in London that opened only last year, and 371 concessions. Deloitte has been appointed the administrator.
But given that this model rose from the ashes due to a “pre-packaged” arrangement in 2009 it’s unlikely to be given a second reprieve although that really is the ‘litmus test’ for many high profile retail businesses currently on respirator. If they rise again, the administrators manage to find buyers and satisfy the creditors, then it could indicate that a degree of optimism still lingers on the high street. If not then it could signal that a fresh wave of closures is about to crash into the sea wall defences of the high street, particularly if (despite the bluster) Xmas sales were in fact a false mirage beyond the intense public relations exercises so many retail operations seem wedded to.
- The news concerning Barratts arrived as speculation grew that a huge round of store closures is under discussion at Peacocks, the struggling clothes retailer chaired by Allan Leighton, formerly an Asda director and chairman of Royal Mail. Sources suggested that 200 shops could be axed in a bid to turn around the business, which has £240m of debt. Shareholders include the US investment bank Goldman Sachs and lenders include Royal Bank of Scotland. The company was unwilling to comment on any closures. It said: “We continue to progress our restructuring discussions and plans, with no decisions taken at this point.”
- The outdoor clothing retailer Blacks Leisure said it was looking for an emergency buyer, Blacks Leisure has closed 101 stores in the recent past but this year issued two profit warnings and put itself up for sale.
- Electrical retailer Comet announced first-half losses of £23m in December underlining why its parent group Kesa had recently agreed to hive off the 248 store chain to a business turnaround specialist for a nominal fee of £2.
- Last month the American retailer Best Buy said it was pulling out of Britain, while Focus DIY collapsed into administration earlier this year after defaulting on loan payments.
- In June furniture store Habitat went into administration before some of its stores and the brand were bought out by Home Retail Group.
- Struggling sports retailer JJB Sports narrowly avoided administration three months earlier after agreeing a new deal with landlords and agreeing to close up to 89 of its stores, in addition to the 140 stores it shut in 2009.
- The lingerie chain La Senza and the gift retailer Past Times were both on the brink of administration on Xmas Eve, leaving thousands fearing for their jobs over the reminder of the Christmas holiday. La Senza, which has 146 stores and is owned by Lion Capital, hired a restructuring team at KPMG earlier this month in a desperate attempt to reshape its burdensome debts. Meanwhile, Past Times, the retro-themed gift chain with more than 100 stores is also working with the accountancy firm. It made a loss in 2010 and has been struggling for years.
There is a pattern developing here (if analysts care to indulge in an exercise of closer inspection) and it burrows far deeper than the simple realisation that the ’tills aren’t ringing’ anymore; normal lines of credit for these business are being withdrawn as lenders refuse to lend good money after bad. The normal course of action for these businesses is to access funding to keep the model intact or to expand further. However, now they have to cut costs in order to survive, they’re locked out of normal credit facilities as the prevailing attitude is that the high street is, despite the rows of empty units in every mall and high street, still far too crowded for the levels of business anticipated in 2012.
The UK is not alone in having many retailers who will close if the Xmas and new year sales don’t open the battle weary customers’ pockets, recently Sears, the owner of the K Mart brand in the USA announced the closure of up to 120 of its stores citing poor Xmas sales as the underlying reason. There was also another indirect news item yesterday which although not directly related to retail might also indicate that major businesses, previously thought of as robust, are having to rationalise and reduce as opposed to expand or contain..
The New York Times Co said it will sell 16 regional newspapers spread across the U.S. Southeast and California to Halifax Media Holdings for $143 million in cash as it looks to cut costs and focus on its most important papers and their websites. The rhetoric will be that without these papers, the firm will be able to focus on its flagship The New York Times and monetize its digital content. However, similar to consumers, retail outlets and major stores raising debt, in order stand still or expand, is proving incredibly difficult in the current climate which could be the first indication that a new version of the 2009 credit crunch is about to hit.