According to a recent analysis by the Financial Times of data published by the Office for National Statistics, the year 2022 saw a notable 7% drop in the establishment of businesses compared to 2021, totaling 337,000. This decline was particularly pronounced in sectors such as retail couriers and real estate. 

For decades, service industries have been the driving force in the UK’s economic landscape. Comprising approximately 10% of the nation’s economy on average, the retail sector has consistently stood out as a major contributor to this growth trajectory.

However, recent times have witnessed challenges for traditional retail stores across the country. This is due to both – ongoing technological advancements and shifts in consumer shopping behaviour. High borrowing costs and diminished demand are adversely affecting the establishment of new retail businesses as well. This has added further pressure to an already stagnating economy.

Facing the highest rate of insolvencies and administrations since the 2008 crisis, the UK is grappling with heightened financial challenges. The recent dip in household spending over the past three months has further exacerbated the economic scenario. Let’s delve into recent developments to assess the current state of the sector.

Insolvency Numbers Rise in the Retail Sector

A notable surge has been seen in company insolvencies in retail, leisure, and hospitality sectors, according to the latest data from the Insolvency Service. Consumer-facing businesses within these sectors experienced an increase in insolvency rates over the past year. Wholesale and retail saw a significant uptick of 52 percent during the period ending in Q3 2023.

Rising input costs for raw materials and utilities, among other corporate expenses have made the trading environment more difficult over the last few months. Additionally, labour shortages compelled many businesses to substantially raise wages to remain competitive and attract talent. This directly increased insolvencies all across the country.

Numerous retailers are trying to trim excess inventory in 2023 in order to make it easier for the business to stay on the market. This could potentially help enhance longevity and better trading opportunities, but its impact remains to be seen. 

Update on EG Group’s Debt Figures

Just recently, EG Group announced a substantial reduction in its debt burden following the sale of its UK business to Asda. This move was described as having significantly lowered net leverage. The transaction, valued at $2.5 billion, involved the transfer of EG Group’s UK and Republic of Ireland operations to Asda. Both entities are owned by the billionaire Issa brothers. 

The proceeds from this sale, coupled with the sale and leaseback of a portion of its US portfolio, were utilised to repay nearly £3.2 billion ($4 billion) of the group’s debt. Despite this positive financial development, EG Group reported an 18% decrease in EBITDA to £272 million ($345 million) for the three months ending September 30th. 

The decline was attributed to lower fuel volumes and a competitive environment, resulting in a 6% decrease in sales from £6.4 billion ($8 billion) to £6 billion ($7.6 billion) during the same period. 

Business buyers eyeing distressed business acquisitions can draw crucial lessons from EG Group’s strategic moves. The emphasis on debt management and reduction, as evidenced by EG Group’s sale of its UK business to Asda, showcases the significance of addressing financial liabilities. Buyers should scrutinise the debt structure of potential acquisitions in a similar manner to avoid financial strain. 

EG Group’s commitment to strategic portfolio management and focus on core competencies also highlights the importance of evaluating underperforming segments and taking action to streamline their operations better. In a nutshell, this clearly states the importance of thorough financial due diligence and its role in securing a business’s overall financial health.

Black Friday Shopping Numbers Dip as compared to 2022

British shopper numbers and transactions experienced a slight decline compared to the Black Friday sale of 2022. Retailers hoping for increased spending were disappointed, following a subdued October. 

Barclays, which processes nearly half of the country’s credit and debit card transactions, reported a 0.63% decrease in transaction volume on Black Friday compared to 2022. This dip has been related to the current cost of living crisis in the UK. Consumers are increasingly  becoming more cautious about their spending. Despite the year-on-year decline, Black Friday remained considerably busier for retailers, with transactions up 2.7% compared to the equivalent Friday in October, underscoring the enduring popularity and significance of this shopping event.

Shopper numbers across Britain on Black Friday increased by 11.8% compared to the previous week but declined by 1.6% year-on-year. For the entire Black Friday week until November 25, MRI reported a 7.9% increase in footfall from the previous week and a 2.0% increase year-on-year. 

While all three destination types—high streets, shopping centres, and retail parks—saw consistent rises in footfall throughout the week, weekly footfall remained 12.6% below 2019 levels due to the ongoing shift to online shopping. Despite these concerns, major retailers such as Tesco, Sainsbury’s, Next, Primark, and Marks & Spencer have expressed confidence in the outlook for the crucial Christmas trading period, offering a glimmer of optimism. 

SportsCheck Goes into Administration | Frasers Deal Update

Frasers Group PLC, the Shirebrook-based owner of Sports Direct, Frasers, and Flannels retail chains, has opted to withdraw from its previously announced agreement to acquire SportScheck GmbH. Frasers was supposed to acquire SportSCheck from Signa Retail Department Store Holding GmbH, after Signa filed for administration last week.  

The initial deal was contingent on obtaining merger control clearance. Frasers Group chose not to pursue this consideration following SportScheck’s insolvency declaration. The company now intends to collaborate with SportScheck’s administrator to explore the possibility of acquiring distressed assets. 

The current stock price for Frasers Group PLC stands at 883.50 pence, reflecting a 1.2% decrease. Over the past 12 months, the stock has experienced a decline of 1.3%. 

There’s an important lesson for business buyers exploring distressed business acquisitions here. With dealmaking like this, focusing on adaptability, strategic contingency planning, and effective collaboration is key. Frasers Group’s experience underscores the importance of flexibility in deal structures, particularly in response to unforeseen developments like SportScheck’s insolvency. 

This highlights the need for buyers to establish clear contingency plans that account for various scenarios, ensuring they are well-prepared for unexpected challenges or changes in the business landscape during the acquisition process. Additionally, effective collaboration with insolvency administrators or relevant stakeholders is crucial. No matter the size or scale of the acquisition, open communication and cooperation is necessary.