2018 will be known for the year that the look of the UK high street transformed month on month. It’s a year where the struggles of some big brand names were put directly under the spotlight for all to see. Sadly many of them did not recover.
As we enter the final weeks of the year, our local high streets lost over 700 stores and left over 35,000 people without a job from retailers including Toys R Us, House of Fraser, New Look and Poundworld.
At this current moment in time Mothercare has restructured in order to address falling UK sales.
Consumer buying habits and high fixed costs remain the at the heart of problems for the high street retailers.
The trend of shoppers buying online rather than in store continues to be a significant contributor to the woes of retailers on the high street. The development and investment into mobile shopping platforms is giving buyers the freedom to shop ‘anywhere, anytime’ only fueling the reduction in sales at physical stores.
The latest figures from the British Retail Consortium confirmed that footfall on the high street has fallen by 6% in the year to March 2018. This is the largest year on year decrease since 2010.
At the same time sales from the UK’s Top 20 e-commerce only retailers grew to £8.4billion last year, an increase of 23% as reported by law firm RPC. In fact, the combined sales from the top three online only retailers (Shop Direct, Asos and Ocado) was £5.1bn in 2016-17, an increase of £4.4bn from the previous year.
What’s been hard to ignore this year is the rate of change. The decline in offline sales has been steady in the last decade; a noticeable change that has encouraged remedial steps to be taken. What’s different of the last couple of years is that shopping habits have changed dramatically and within a short space of time, which has been driven by developments in the technology available.
Today the online shopping experience is much more than simply browsing items that are also in the shops. We have AI-driven chat bots to offer advice and recommendations, we can take photos of items we see around us and locate them online, we can compare prices from a variety of retailers within seconds… high street retailers just can’t keep up. They are investing in their online shops, but it may simply be too little, too late.
A common theme among the retailers hitting the headlines this year is their significantly high cost base for renting their premises. Several ‘landmark’ stores have been closed down in order to save the business, and for many this has eased the financial pressures to a degree. The rest however it has simply delayed the inevitable outcome of closure.
Hundreds of stores have been closed as part of restructuring plans to avoid administration or entering into CVA (Company Voluntary Arrangement). The number of insolvencies relating to the retail sector has increased by 7% in the last year, with RPC reporting 1,071 insolvencies for the sector in 2017/18.
The rate of CVAs has actually reduced over the last 5 years according to research from RPC. Many believe that recent high profile CVAs which have failed, for example Austin Reed and BHS, has left many businesses and their creditors more concerned of their ability to avoid administration.
It’s likely that high street names will continue to hit the headlines. A number of retailers are widely reported to be considering CVA to address their financial difficulties. We know that e-commerce will continue to develop and increase its share of retail sales, therefore there is inevitably going to be a continued decline of consumers taking to the high streets to buy tangible items.
Retailers must continue to rethink and adapt to the changing way that consumers use the high street today and in the future, providing them with more reason to visit.
Department stores for example may focus on fewer store locations, closing a number of high cost/under-performing stores in order to focus on bringing those sales through their online channels. As this looks to be a continuing trend, this may mean that retailers need to start planning for a different kind of town centre; one with fewer shops and more homes, restaurants and places of entertainment.
There is already a shift on the high streets from products to experiences. Larger stores and supermarkets are looking to incorporate other services in order to attract custom and give shoppers more reason to visit that store.
There are a number of key signals that indicate that a business is starting to struggle:
1. Cash flow has stalled
If a business is unable to pay its bills on time and is regularly being failed by its own customers making prompt payments then a backup pot of cash is unlikely to be available to fall back on. This is a difficult position to get out of, but if addressed early enough, the long-term outcome can be changed.
2. Borrowing limits have been reached
If a business has no avenues left to access finance then there’s some big issues in that business. It’s not a situation a business should easily fall into, and is a clear indicator that external help is needed.
3. High staff turnover
Every business will have a certain rate of staff turnover, but if this rate increases it leads to a number of problems. Each new joiner to your business gets an investment of time and training to bring them to up speed. When they leave there is simply no return on your investment. Remaining team members start to lose morale, and productivity and service levels start to slide.
4. Suppliers and customers are becoming insolvent
If a link in your supply chain is no longer able to trade this will naturally have a knock on effect to your business. This could leave you either without getting paid or without key material needed to keep your business going.
5. Political and environmental influences increasing costs
When uncertainty is in the air around political changes, some costs for your business can be increased and it will be out of your control. Obviously there is a lot of uncertainty at the moment with Brexit and how costs will be impacted with trading with EU countries in the future. This could lead to further troubles for businesses already suffering with decreasing sales.
Once you realise that there are problems which need to be addressed the most important first step is to get expert advice. The quicker you speak to a professional adviser, the more likely you’ll have options to restructure your business and get back on track. The longer that problems are allowed to grow in your business, the more likely your options will be limited.
Our insolvency experts are here to help you. They have worked with businesses like yours for many years. They will work with you to get the right outcome for your business.
Call us today on 0808 1644 222 for a confidential discussion about your situation and how we can help you.