September 12, 2018 - England
From Footfall to Clicks - The Experts Talk Retail Risk
Over the last few years, news that some of the nation's most iconic retail stores have closed has become more frequent.
Yesterday, Poundworld entered administration. Last week, House of Fraser announced it would be closing 31 stores, many of which are in some the UK's largest cities.
It is no secret that many retailers have been adversely affected by the shopping habits of consumers, ever since the advent of a new pastime - buying online. This has forced, particularly those who have large property portfolios, to adapt quickly to accommodate ever-changing consumer habits. Other factors have also been at play.
Two of Shoosmiths' retail experts give their view on the retail landscape and what retailers could do to mitigate their risk.
Gary Assim, head of retail at Shoosmiths, comments:
"There's no doubt that the retail sector has been hit hard by a number of factors, aside from the advent of online shopping.
"Retailers have had to swallow increased costs due to the apprenticeship levy and business rates. That is before we even mention Brexit - on that front raw materials are usually paid for in US dollars and Brexit has devalued the sterling and it is not clear how long this will last or even if this will improve in the short to long term.
"Retailers with a large proportion of bricks and mortar should undertake a review of their property portfolio. Given Brexit, they should also seek specialist advice on hedging foreign currencies.
"In this climate, retailers should also consider reviewing their manufacture, shipping and distribution channels for ethical savings and consider whether the domestic market is a competitive-enough marketplace for them - it might be worth looking for low hanging fruit abroad, especially by way of internet sales."
Lastly, Gary says that to stay ahead, retailers should think seriously about investing in technology:
"Investing in technology - particularly for web-based platforms - can in the long-term ensure a more efficient business and therefore a more competitive environment. Companies that take investment in technology seriously generally stand a better chance of surviving. Although it can be a considerable outlay, in the long-run it can pay dividends."
So what are the next steps when a retailer receives an indication that it is not performing well?
Sarah Teal, insolvency partner at Shoosmiths, says:
"CVA's are an important tool to enable directors to create a business that is viable again. They allow businesses to identify underperforming stores, and create a new structure to give it the best chance of survival."
Sarah comments that this is "preferable to the loss of brands on the high street", where underperforming stores can mean the end of the existence of the brand.
"We have seen this with many stores - Woolworths, Maplin and MFI. This is why CVAs should be considered. Although landlords may find CVA's harsh - if they do not like the terms being offered they can take their store back.
Sarah concludes: "Retail is going through a difficult time and a CVA presents a way for a company to restructure its business in a harsh trading environment. Under a CVA, the directors/shareholders can remain in intact and a business that is more viable comes out the other side. This is almost always a business that is better equipped to deal with the retail market."
Although the future might be unpredictable for retailers, options exist to change the business model - and for those that have already suffered, there are possibilities to keep businesses viable.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.