There are many reports about retailers in the news at the moment, some of them very well established businesses, getting into serious financial problems and being taken into administration.
One of the most notable is Toys R Us, which has gone into administration putting 3,200 jobs in 105 stores across the country at risk, but more recently we have seen South Yorkshire headquartered Maplin, a retailer of electronics, also taken into administration risking a further 2,500 jobs.
Of course, we would like to see these established brand names saved and returned to trading status to protect those jobs and prevent the economy taking a hit, but it’s important that whatever the individual outcomes for these companies – we understand and learn from what put them at risk in the first place.
One of the biggest challenges in the retail world is working with the latest techniques to sell goods and as more and more people turn to online methods of shopping, larger retailers are forced to look at their operating system and to challenge whether it is competitive.
In the case of Toys R Us, the company had a strong trading history through the nineties, when large, out of town shopping and retail parks were seeing lots of footfall. This was essentially a trend that became superseded as people looked to more boutique shopping experiences. However – the company stuck with the business model, favouring large warehouse type outlets and crucially – it was very slow to adopt online marketing or sales tools.
This wasn’t the only difficulty the business faced – it had a historically high level of borrowing and as such was not cash-rich, the business had already entered into a Company Voluntary Agreement (CVA) to reduce debts over time and part of that agreement was to close 26 stores. These factors combined with ultimate failure to succeed against stiff competition in a growing click-and-collect marketplace meant that when Toys R Us was presented with a £15 million VAT bill – it simply couldn’t honour the payment.
Maplin is a business which started out as mail order and built up a nationwide branch of stores and despite entering into an online marketplace – the company ultimately failed to compete with competitors and after its credit insurance was cancelled, was beset by suppliers demanding cash-up-front. This led to a cash-flow problem and an inability to fully stock some of its stores. Hopes for a buyout by the owner of Edinburgh Woollen Mill, which also owns Peacocks stores, did not come to fruition which forced the company into administration.
Another key influencing factor for Maplin was the fluctuating exchange rate following the Brexit vote which raised the cost of importing goods into the UK.
Last year alone saw 44 UK retail businesses fail and many of the issues affecting Toys R Us and Maplin are also causing difficulties for other retailers. It is a business sector that is witnessing huge pressure for companies to run profitably or to simply avoid being forced into administration.
Part of the solution lies in being ahead of the game and balancing shop square footage against online sales, but another part of surviving is down to planning and managing cash flow.
If you are a retailer and you are feeling the pressure of competing in today’s rapidly changing market, speak to us – we are a dedicated business turnaround specialist who could put your company back on track before it becomes the next one to fall into administration.