Retail Administrations in 2018
Retail Administrations and Toys R Us. Was it Inevitable?
With the news that Toys R Us has gone into administration and the collapse of Maplin, are we seeing what we predicted in an article in November 2017 (Insolvency Practitioners and Retail Failures): ‘Prediction for Retail Meltdown in January 2018’? It’s nearly March now, of course, and whilst we would suggest that meltdown has not happened (positive stories in 2017 have included Games Workshop, Lidl and Next), today has been a black day for the retail sector. Since the start of the year, there have been many retail insolvencies, CVAs, company administrations and liquidations, and trading remains very challenging on the high street.
In this article, we look briefly at the causes of these difficulties. We also pose the very challenging question: ‘was the administration of Toys R Us inevitable?’
Why is Trading so Challenging on the High Street?
There are several well known and understood reasons for this:
- Online shopping has massively affected the high street with, for example, 20% of fashion now bought on the internet. Those retailers who were slow on the uptake are finding it difficult or impossible to catch up.
- Tastes are changing. The way that households spend their time and money is changing significantly. Leisure, travel, eating out, eating in and technology are all taking time and revenue that would once have gone to shops.
- Costs are rising, including: rent, rates, the national minimum wage, imports, etc.
Although it has not been bad news across the board, there are many retailers who are struggling:
- House of Fraser is seeking to reduce its rental commitments
- There are store closures to reduce fixed costs at Debenhams and New Look
- There are thousands of job cuts at the major supermarkets
- Warren Evans, the specialist beds retailer, went into administration in February 2018
- East, the fashion chain, collapsed at the end of January.
- Multiyork (furniture stores) and the shoe retailer Shoon both falied shortly before Christmas, and are no longer trading.
There will be more.
Was the Administration of Toys R Us Inevitable?
It could be said that Toys R Us’s problems, which have been known about for a long time now, were down to a lack of investment in its stores and it’s online offering, with these and more general difficulties tending to expose and exacerbate problems at weaker outlets. Indeed, the company’s US parent is currently in bankruptcy having sought protection in September 2017.
The UK chain won a stay of execution in December when landlords agreed to take back the keys to a quarter of its shops and accepted less rent for those that stayed open, but after weak trading in the new year its US owner cut it adrift.
As a result, a sale had been sought before the end of this month when several payments became due, including a £15 million VAT bill. Ultimately, a company administration has resulted, with thousands of jobs at risk. The harsh truth is that Toys R Us was carrying an unsustainable level of debt, and with sales falling, it has been unable to adapt to a changing retail environment. Administration looked inevitable some time ago.
From a wider perspective, there are also indications that the era of large out of town retail parks, where most of Toys R Us’s stores were located (and Maplin’s, too), might well be over.
Administrations and High Street Retailers – Our Comments
Our comment is that the general difficulties currently being faced by retailers will almost inevitably lead to the weaker performers potentially failing. Such failures, from administrations to liquidations are, of course, very unwelcome in terms of disruption and losses to creditors and, especially, to those who lose their jobs and all the stress that goes with that.
It is a sobering thought, however, that perhaps we have to recognise that retail businesses that have lost their way and are overburdened by debt may well be better to be allowed to fail, given that their insolvency is almost inevitable. Under these circumstances, as orderly an insolvency process as possible is the best that can be hoped for.
For help and advice on administrations specifically, and insolvency procedures in general, please contact our insolvency practitioners, or phone them on 0207 831 1234. The initial consultation is FREE. Click here to see some testimonials for administrations we have supervised. With offices in London, Brentwood, Salisbury and the Cotswolds, we have good coverage of England from the South up to the Midlands and beyond.