Retail is a cornerstone of the UK’s economy, deeply embedded in the socio-economic fabric. Shops and high streets form the heart of many communities, offering quality products, creating jobs, and supporting local causes.

Recent months, however, have been tumultuous for the industry. Post pandemic challenges, rising costs, and a stagnant economy have created a difficult trading environment. Consumer spending has fluctuated, and retail insolvencies have reached a 10-year high. 

Adding to this uncertainty, the recent General Election announcement, has intensified economic unpredictability. While there’s potential for a consumer-led recovery, escalating costs continue to add fiscal strain. How does this bode for business owners and buyers looking to capitalise on distressed assets? Let’s explore.

Sector Overview

ONS data from May reveals that April’s unrelenting rain led to a significant drop in British consumer spending, with shoppers cutting back on clothing and big-ticket items. There was a 2.3% decrease in goods bought compared to March, far exceeding analysts’ forecast of a 0.4% decline.

Non-food store sales fell 4.1%, the largest drop since January 2021, with furniture, clothing, sports equipment, and toy shops experiencing the steepest declines. Retailers cited low footfall due to bad weather, high living costs, and high fuel prices despite a decline in annual inflation to 2.3%.

Petrol sales dropped at their fastest rate since October 2021, and food store sales volumes fell for the third consecutive month. Additionally, British retail sales to the EU have plummeted by £6bn since Brexit, despite a booming European e-commerce market. Trade frictions from Brexit are limiting sales opportunities for UK brands and retailers.

Non-food retail exports have fallen nearly 18% to £2.7bn since 2019, with clothing and footwear sectors hit particularly hard. Challenges include escalated logistics costs, complications registering an EU entity for trading, and increased market delays.

The new trading relationship with the EU has shifted operations, with health & beauty, electricals, and DIY & gardening now making up three-quarters of UK retail exports to the EU. Only health & beauty and DIY & gardening have seen a marginal rise in export values since 2019.

Online marketplaces have become crucial for UK brands to mitigate Brexit’s impact, accounting for over two-fifths of the EU’s £322.6bn annual online non-food sales. These marketplaces offer scalable market opportunities at low risk, essential for UK retailers navigating post-Brexit complexities. With one out of every £10 spent on commercial investment in retail, a clear roadmap for tax and regulatory reforms is needed to help retailers focus on growth rather than red tape and extra costs.

Impact of Inflation on Retail Sales

Retailers, having experienced falling input prices for several months, passed on price cuts to consumers. Despite wage rises and tax cuts in April improving consumer sentiment, unseasonable weather dampened demand, leading to more promotional activities

Shop price inflation in May dropped to its lowest level since November 2021 as retailers reduced prices on big-ticket items like furniture and TVs. According to the British Retail Consortium (BRC) and NielsenIQ, prices rose annually by 0.6% in May, down from 0.8% in April.

Non-food prices saw a notable decrease, falling by 0.8% annually in May, marking the second consecutive month of deflation and the largest drop since 2021. Food prices increased by 3.2%, slightly down from 3.4% in April, with fresh food prices easing despite concerns over production due to a cold, wet spring.

The drop in shop inflation has raised hopes that the worst of inflation may be over, potentially prompting the Bank of England to consider cutting interest rates to ease household pressures. However, foot traffic to shopping destinations decreased by nearly 1% year-on-year in mid-May, especially for mid-sized retailers.

Opportunities in the Distressed Business Market

In the current economic scenario, the convergence of several economic factors has created a landscape ripe for strategic acquisitions and investments. These include:

Valuation Discounts on Assets: Big-ticket items like furniture and electronics have seen significant price cuts. Distressed business buyers can capitalise on these lower valuations to acquire inventory at reduced costs, enhancing their potential for higher profit margins. 

Acquisition of Non-Food Retailers: With non-food store sales experiencing a 4.1% drop, businesses in this category, such as clothing, sports equipment, and toy shops, may be undervalued. Buyers can acquire these businesses at a discount, restructuring and repositioning them for future growth as consumer confidence returns.

Expansion through Strategic Mergers: The downturn in retail has led to increased promotional activities and competitive pricing. Buyers can leverage this by merging distressed businesses to create economies of scale and enhance competitive positioning.

Retail News: Ted Baker UK Faces Liquidation Without Licensing Deal, 

A critical factor determining the future of Ted Baker’s British operations lies in the hands of its rights owner, Authentic Brands. Administrators have warned that a failure to negotiate a licensing deal could lead to assets being liquidated. The company fell into administration less than 3 months ago.

Authentic Brands, which acquired the Ted Baker brand in August 2022, received offers from prospective partners in April, including Next and Mike Ashley’s Frasers Group, to become the new UK operating partner for Ted Baker. However, a successful deal is contingent upon Authentic Brands granting a new license to use the Ted Baker brand. Without this crucial agreement, Ted Baker’s UK entity, known as No Ordinary Designer Label (NODL), may be forced into liquidation.

Administrator Teneo is actively engaged in negotiations with essential stakeholders to ensure operational continuity. At the same time, they are preparing for a liquidation strategy in case a buyer is not found within the specific time.

Furthermore, the situation is complicated by claims from nine Ted Baker suppliers seeking to reclaim their stock from NODL’s distribution center. No settlements have been reached thus far, posing additional challenges to the administration process.

The financial woes of NODL began when promised investments from its then-owner and Ted Baker licensee, AARC, failed to materialise. This setback left the company in urgent need of funds, especially after experiencing a downturn in the fourth quarter.

Despite the administration process, it’s likely that only Secure Trust Bank and HM Revenue & Customs will recover the full amounts owed to them, leaving NODL’s 612 unsecured creditors with little hope of reimbursement. Before entering administration, NODL employed nearly 929 individuals across the UK and operated 98 stores and concessions. Regrettably, the administration process resulted in the closure of 11 stores and the loss of 118 jobs, along with 43 redundancies at its head office.

Retail News: UK High Street Banks Being Replaced by Nail Salons and Takeaways

New research indicates that hairdressers and takeaway restaurants have supplanted banks and clothing stores in England and Wales in the last decade. This is driven by the rise of online banking and ecommerce. This shift reflects a move towards “experience-based” leisure activities in town and city centres, where consumers seek grooming services.

Hairdressers and beauty salons, including nail bars, have more than doubled in major towns and cities since 2010, with approximately 2.5 new establishments opening daily over the past 13 years. Although hairdressers saw a decline in 2022-2023, barbershops, beauty salons, and nail bars experienced robust growth.

This has been particularly noticeable in northern England, with Manchester boasting an average of 11.2 takeaways per 10,000 people compared to London’s 7.2. This disparity underscores a significant north-south divide in takeaway establishments.

Despite these trends, the most substantial increases in business outlets over the past 15 years have occurred in warehouses and road freight businesses serving the ecommerce sector.  This coincides with closure of major high street retailers like Wilko, Debenhams, and Poundworld, whose operations have been shut owing to economic challenges. The shift to online shopping has also complicated high streets’ role as a reliable economic indicator. 

In light of these successes, now is a good time for distressed business buyers to delve into consumer trends and pursue acquisitions that closely align with shifting preferences. This could entail broadening product or service ranges to integrate experiential elements that resonate with contemporary consumers. Understanding regional differences in consumer behaviour is also crucial, as the disparity in shopping patterns between the northern and southern regions will define the overall growth potential of a retail business. 

For insights into the most profitable investment prospects in the UK retail sector, keep following Administration List.