RBR Advisory highlight how retailers can avoid closing down their business as empty shop windows become a regular occurrence during the high street crisis
A regular talking point across the British media in 2019 has been the deterioration of the British high street, the demise of year-old businesses and cuts to underperforming branches. The high street which was once a valuable marketplace for everyday essentials, traditional banking services and a social meeting place is dwindling in value.
The running theme for last year was the shutdown of household names and cuts to selected stores which once dominated the market, such as Debenhams and New Look. 2018 was the year that international toy retailer, Toys ‘R’ Us, entered administration after failing to secure a buyer.
The Toys ‘R’ Us story
Toys ‘R’ Us stores across the UK faced closure in 2018 as a result of declining sales and racking up debt, year on year. Soon came the arrival of competitor toy stores, Smyths, The Entertainer and Lego which offered a larger variety of products at a cheaper price which were accessible online and thrived off creativity and imagination, vastly different to the approach taken by Toys ‘R’ Us.
Toys ‘R’ Us struggled to keep up with technological trends by failing to invest in its website and online ordering services. The brand also failed to undergo any major brand redesigns throughout 60 years of trading which aged the look of the business, disconnecting with children and parents. For example, walking into the British toy store, Hamleys, is a theatrical experience with live demonstrations of electronic machine toys and interactive puppet shows. This forms an emotional connection with children and delivers the intentional wow factor to parents who have the buying power.
Forced to close shop
Businesses which have now disappeared from the high street after struggling to stay afloat in 2018 include discount retailer, Poundworld, and electronics retailer, Maplin. As German discount stores, Aldi and Lidl, continue to dominate the market, Poundworld was forced to backtrack. Maplin has also closed all UK stores and is set to launch as an ‘online only’ brand.
UK businesses forced to close branches in 2018 include:
Carpetright – The carpet retailer closed 92 out of 400 branches and is on track to close more
Mothercare – 50 stores closed out of 137, taking the figure to one third
Prezzo – 94 out of 300 outlets closed, resulting in 500 job cuts
Debenhams – 50 underperforming stores forced to close shop
New Look – 85 store closures, resulting in a loss of around 1,000 jobs
During 2018, 14 high street shops closed on average every day as they faced the toughest trading year in five years. Restaurants and pubs were amongst the long list of businesses which experienced difficult trading, and continue to do so.
How can a high street business avoid closure?
Catching up with online trading
The rise in online sales is diverting footfall from the high street to digital shopfronts. Purchasing online allows you to efficiently compare prices from different retailers through the click of a button, giving customers less reason to visit the high street.
Operating online also gives you the ability to market more items in comparison to a physical store which is restricted in both storage capacity and space. For example, online clothing retailer, ASOS, is able to sell over 850 brands, with over 87,000 items available to purchase at any one time through the website.
By catching up with online trading, you are able to tap into markets which are harder to reach when pitching from the high street. Rather than limiting your services to a local/regional client base, operating online enables you to market nationally and internationally. By creating a seamless balance between online and offline, high street retailers can stay in business and distribute their efforts across both platforms in the hope to attract new customers.
Rising costs squeezing businesses
Businesses are being pushed to the brink to fulfil minimum wage requirements and rising business rates. When running an online business, your commitments may differ to running a physical store as you may not be bounded by the same legal and financial obligations. This allows for greater flexibility as if sales are low one month, you can reallocate money, rather than storing reserves for the maintenance of your physical store.
When experiencing the first signs of financial difficulty, it is best to cut down on spending in order to avoid trading as insolvent. In more serious cases, a licensed insolvency practitioner can be appointed to help restructure the business to drive profitability. If cash flow is running low, you can explore company administration to avoid the liquidation of the business. There are also alternative finance options which can help inject cash into the business, providing it with enough working capital to continue trading.
Red Flag Alert Q4 2018
The highlight for the latest Red Flag Alert covered poor trading over the Christmas season. The Red Flag Alert produced by Begbies Traynor group plc establishes the industry benchmark for financial data which identifies corporate distress.
The report shows that retail businesses in distress are now 481,000, up by 15,000 from Q3 2018. This is an increase of 529 retail businesses which are in financial distress. Despite the increase in retail businesses in distress, another sector feeling the brunt of poor performance during the festive period includes the Real Estate and Property industry, according to the Red Flag Q4 report.
This could have been caused by uncertainty around the outcome of a Brexit No-Deal and a slowdown in investment due to the UK’s exit from the European Union. The full Red Flag report can be found here.
The high street has undoubtedly felt the struggle as online shopping continues to dominate traditional shopping, however, the Red Flag data shows that the number of retail businesses showing distress levels in the final quarter of 2018 was much less than anticipated, with the real estate sector overtaking the figures.
As high street businesses begin to overcome footfall, Brexit and economic challenges, we question how many more businesses will either fall or successfully tackle economic uncertainty in 2019.