It’s no secret that the UK retail sector is facing a serious crisis, with the demise of several vendors including HMV, Toys R Us and LK Bennett a stark example of companies which have failed to stay afloat. But where did it all begin and what actions can retailers take to avoid collapse? How will shockwaves in retail be felt in the accountancy sector?
The retail landscape has changed in recent years due to the rise of several economic trends. government policy changes, including rising business rates and the introduction of the National Living Wage scheme, have had a significant impact on the profitability of many retailers – particularly at the SME level.
The sector has also been disrupted by the advancement of technology, with the explosion of e-commerce ultimately coming at the detriment of the traditional bricks and mortar retailer. The 21st Century consumer can now do all the browsing they need to without ever having to leave the comfort of their homes, and safe in the knowledge that their purchases will be delivered to them. With a minimal cost on property, the likes of retailers such as Amazon, Boohoo.com and ASOS have seen meteoric rises, forcing traditional retailers to take their own steps online.
The uncertainty around costs of trading on the high street has led to a string of high-profile administrations, from House of Fraser to British Home Stores. Just last month, we advised womenswear retailer Select, which trades as Genus UK, which was successful in securing a Company Voluntary Arrangement (CVA).
A CVA has often been the best form of rescue plan for retailers that enter administration, creating a legally binding agreement between an insolvent limited company and its creditors. The arrangement enables the insolvent company to repay a proportion of its debts over an up to five-year period, and often includes a reduction in operating costs to help the business get back on its feet.
In order to avoid these processes, retailers should take professional guidance to ensure that their accounts are accurate, factoring in business rate and wage increases to avoid unexpected financial troubles. Further, brands should keep their eye out on market trends and learn from the downfall of companies who failed to stay ahead of the curve. When competing with online retailers, cheaper alternatives and similar brands in a competitive market, retailers must make their customers’ experience memorable and unique, encouraging ‘dwell time’ and therefore purchases.
Chris Newell, partner at business advisory firm Quantuma