talking trade

The drugs don’t work – do they? Industry commentator Michael Weedon reviews the health of the high street

[Ernst & Young] shows that warnings from FTSE [Financial Times Stock Exchange] retailers have hit an eight year high in 2019, with the retail sector leading all others - so we can expect more of this. One reason why retail failures are making headlines is that the public knows their names. It takes a “will it be saved or will it crash?” crisis like that at Bennetts in Derby, billed as the “world’s oldest department store”, for a story about an independent retailer to catch the eye of the nation. The vast majority of independent closures will be noticed only locally - and fewer will make the local news.

retail sales pumped up by 3.2%, with £3.8 billion more flowing into the till than the previous year. With CPI [Consumer Price Index] inflation under target at just 1.7% and regular pay rising by 3.9%, we have more money in our pockets to spend. On this evidence, retail is getting its fair share of that cash. And while online sales have outperformed shops, even traditional retailing has seen its takings rise ahead of inflation. Despite this, in the first half of 2019 alone we


have seen nearly 26,000 shop closures, according to retail market researcher Local Data Company, outstripping openings of just over 22,000. Two-thirds of the changes were of independents yet, strikingly, within the net loss 3,647 stores, while 3,509 were multiples all but 138 of the independents were replaced by new businesses. The “problem” is with the multiples. Among the chain stores that closed in the first six months of the year, a quarter (932) were brought about by just 27 CVAs [Company Voluntary Arrangements]. The latest Profit Warnings Report from accounting firm EY

et the impression that something is not quite as it seems? On the one hand, the past 12 months have seen UK

”While online sales have outperformed shops,

even traditional retailing has seen its takings rise ahead of inflation”

But high street names like House of Fraser, Thomas Cook and Pizza Express are known by all of us and grab our attention when they make headlines. What’s interesting about that little list is that the companies are all in different sectors - non- food, service and leisure - yet they have all been in the news for the wrong reasons. There are subsectors, especially fashion and footwear, which are under powerful challenge for takings and there we will find multiple examples of troubled businesses. But the overall numbers are telling us that consumers are spending more each year. So what’s up with these outfits? Two stories echo through the reports. The first is debt. Not unpaid bill type debt - corporate debt. The management of high street travel agent Thomas Cook has been grilled by

MPs about several iterations of financial engineering that left the business burdened with more than a billion quid’s worth of liabilities.

Pizza Express is widely reported to be trading well on a day-to-day basis, but the financial engineering which helped it grow has left its management working ever harder to generate operating profits to pay for the servicing of, once again, more than a billion pound in debt. Various reports put the long term liabilities of Debenhams at several hundred million pounds. House of Fraser owed almost half of its nearly billion-pound debt to banks and bondholders. New Look this year cut its own debt from over, once again, a billion pounds, with a debt-for- equity swap, with majority ownership passing to its bondholders. Another, less often visible story, is the balance sheet write-down of the now rather old- fashioned sounding “goodwill”, which puts values on things like brands. Topshop and Topman made many column inches in September with a write-down of £245 million in goodwill, contributing to a half-billion loss. In contrast, an unshowy fascia such as Home

Bargains has built sales of £2.5 billion through 500 branches, is valued at £3.6 billion and is building towards 1,000 stores - yet is reported to be debt-free. And this is all the more remarkable for the fact that like other growing chains such as B&M and Primark, it’s a thoroughgoing discounter. So, consumer spending is growing, yet some hefty chains find themselves weighed down by huge debt burdens built up by the financial bodybuilding that helped them “get big”. As with muscle-builders pumped up by steroids, the drugs can do real damage to the heart and leave the athlete fatally vulnerable. Big is not the same as Strong. It’s what’s under the skin that matters.

• Michael Weedon is chair of the FSB [Federation of Small Businesses] Retail and High Streets Policy Unit and managing director of exp2 Ltd, which carries out projects including research and report creation for clients in the retail industry, including data providers, place managers and individual retailers. He established exp2 in 2016 from a leading trade association role.

Michael’s contact details are: Mobile: 07411 763 551 Email: Tw: @michaelweedon

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October/November 2019

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