Service industries have dominated the UK’s economic landscape for decades now. With an average contribution of ~10% towards the nation’s economy, retail stores continue to remain a top contributor in this growth curve. 

As technological advancements and the shift in consumer shopping behaviour persist, traditional retail outlets have faced challenges in recent times. The combination of increasing inflation rates and the effects of the post-pandemic and post-Brexit regulations has significantly impacted retail sales. 

However, is it accurate to say that high street stores are on the decline, or could there be a potential for their revival? We delve into some key market trends and answer this question in this week’s review. Let’s dive in. 

Industry Overview 

Recent data has shown a positive outlook for retail stores, with inflation hitting a one-year low in September. Lower price increases driven by increased household incomes and price reductions on essentials will boost consumer spending and overall economic activity. This is good news for the industry’s recovery, particularly for households grappling with soaring living costs.

There was a remarkable decline in food price inflation. Annual figures dropped to 9.9% in September, from a peak of 15.7% in April. This downward trend accompanied by further price reductions on fresh food inflation is encouraging for consumers. Despite these improvements, food inflation in the UK is much higher than the US and the eurozone, highlighting the ongoing challenges the industry faces. 

Investments coming through for small towns

There is also an ongoing need to ensure the safety and accessibility of high streets and retail stores in many small towns across the UK. The government’s recent pledge to invest in 55 towns over the next decade addresses this, and has been welcomed by the British Independent Retailers Association (Bira). Each town will receive a £20 million fund, allowing local councils to allocate it to various initiatives. 

These projects aim to rejuvenate high streets. They will also focus on addressing anti-social behaviour and enhancing transportation.  This commitment is part of the government’s Long Term Plan for Towns, which reallocates funds from the HS2 railway project to other areas. A total investment exceeding £1 billion is expected to strengthen the local economy substantially.

This news opens doors for investors keen on reviving struggling businesses in specific areas. It’s a prime moment to examine distressed businesses in these 55 towns that match the government’s investment objectives. If there are distressed businesses in these areas, there may be opportunities to revive existing ones that meet local market needs. Smart investments like these can not just diversify regional portfolios, but be beneficial in the long run!

The key to surviving the fast changing retail landscape is to find a balance with e-commerce and build a deeper understanding of omni-channel retailing. This equilibrium will facilitate more measured growth as the industry enters its next expansion cycle. The owners of retail stores need to equip themselves with stronger management teams and well-structured financial foundations to stay in the game. A focus on efficient operations and evolving retail norms will propel growth.

Is your high street retailer going into administration?

Clarks has confirmed that its Newport Retail Park store will close in late 2023. This news sparked reactions on social media, with one shopper expressing disappointment, while another lamented the closure. A third noted the ongoing trend of store closures.

Clarks announced retail store closures in High Street Inverness in September and Westwood Cross Shopping Centre in Kent in mid-November. Founded in 1825, Clarks once boasted a global presence with over 1,400 stores and franchises. However, its store count has dwindled to less than 320 now. This prompts a question for consumers and investors alike: Is Clarks potentially another high street retailer teetering on the brink of insolvency?

A deeper analysis of this situation revealed that the business is exploring restructuring efforts after posting significant losses in 2019. Private equity firm LionRock Capital invested £100 million to rescue the brand, leading to a Company Voluntary Arrangement (CVA) that allowed for restructuring to avoid insolvency.

In addition to Clarks, other retail stores like Shoezone have been announcing store closures as well. According to research conducted by the British Retail Consortium, 6,000 shops in the UK have permanently shut their doors in the last five years. The repercussions of COVID-19 and Brexit have contributed to this, and made retail owners cautious about opening new ones.

Store vacancy rates rising

The current vacancy rate on the UK’s high streets has reached 13.9%, slightly up from 13.8% in the first quarter of 2023. This increase is more prominent in the North and Midlands. There is a higher concentration of vacant storefronts in these areas.  London has the lowest vacancy rate, which has recently improved due to the establishment of new flagship stores, increased office workers, and higher tourist footfall in the capital.

These vacancies can be profitable for investors interested in turning around distressed businesses with the right strategy and management. A careful assessment of regional market dynamics and target locations will drive restructuring plans ahead. Regions with higher vacancy rates will have lower property costs and competition, which is generally more favourable for acquisitions and negotiations. Additionally, targeting these areas will also rouse support and goodwill from local residents, which is a big advantage for long term sustainability.

Potential Insolvencies to look out for

The last few weeks have seen a steady stream of retail insolvencies surface in the market. As the cost of living crisis makes it even tougher for physical retail stores to stay open, here’s a list of high street retailers to keep on your watchlist: 

Boots: Boots is closing 300 stores this year, reducing its total to 1,900 from 2,200 outlets across the UK

Next: Next plans to close 11 more stores this year, citing various reasons including missed targets and redevelopment

Clintons: Clintons will shut 38 of its 179 card shops to avoid insolvency. An insolvency court approved a plan to rent these stores and pay lower business rates.

Wetherspoons: 33 Wetherspoon pubs have closed this year, with more, including branches in Cardiff, St Ives, and Merseyside, now up for sale.

Victoria Plum sold to AHK Designs in Pre-pack Administration deal

The online bathroom giant Victoria Plum entered administration last week. Administrator Ernst & Young disclosed that AHK Designs, the company’s new owner, executed a pre-pack deal, purchasing stock, brand, IP, plant, and machinery for £7.8 million, while retaining all 345 employees.

Ernst & Young noted that after being acquired by private equity firm Endless in 2019, Victoria Plum performed well throughout the pandemic. The business’s revenue increased to around £113 million in 2022, up from £99 million in 2021. In late 2021, Endless attempted to sell the company, but no substantial offers materialised. In 2022, the company encountered challenging trading conditions attributed to reduced market demand and increased freight costs. This resulted in a £1.9 million loss in the year ending February 2023.

Debt figures

However, this acquisition leaves behind outstanding debts totaling £24.3 million, with no anticipated payments expected for unsecured creditors. Shockingly, Victoria Plum’s customers are owed £2.25 million, including nearly £222,000 in unpaid refunds, £665,000 in unfulfilled trade orders, and £1.36 million in unfulfilled design and installation orders.

Additionally, 72 separate installation companies are owed a combined total of £483,000. Some of the most prominent names in the bathroom industry are also among the creditors, with debts ranging from tens of thousands to hundreds of thousands of pounds. Chinese suppliers, in particular, are collectively owed over £1.8 million. They are the largest unsecured creditor in this deal. Google holds the position of the single largest unsecured creditor, with an outstanding debt of over £3.6 million!

This situation shows how complex business can be, with both successes and challenges. Victoria Plum’s story reminds us that even strong companies can encounter unexpected problems. Now, with AHK Designs in charge, what happens next for Victoria Plum is uncertain, and those involved are left wondering about the debts and the company’s future.