Retailers increasingly turn to CVAs to restructure their businesses

UK High Street flagging as retailers increasingly turn to CVAs

Figures from the British Retail Consortium (BRC) show that the UK high street and retail performance is facing difficulty. In 2016/2017 we saw a sharp decline in performance and it has been stressed that this has continued.

This has been borne out in the high number of companies entering administration or seeking company voluntary arrangements (CVAs) within the last 12 months.

Here, we’ll take a closer look at UK high street performance and the factors causing it to suffer.

Firstly, What has happened to high street performance in the UK?

These are the key statistics from the latest BRC research:

• Overall year-on-year (YOY) retail sales fell 2.7% in May 2019 (the biggest decline on record!)
• Food sales dropped for the first time since June 2016, with further declines in clothing, outdoor goods and footwear
• 1,566 stores have had to reduce rent amounts
• Retail & Leisure Parks account for a third of all closures in the UK as a result of a CVA, administration or liquidation
• Nottingham city centre has experienced the most closures through either a CVA, administration or liquidation
• Birmingham holds the most closures of all UK Urban Areas. They’ve had 26 rent reductions and 23 closures since January 2018
• Of all the Counties, Greater London saw the greatest damage, by far
• Footfall was down 1.4% on average over the 12 months to March 2018
• As in 2016/2017 figures, the South East saw the most rapid fall in footfall
• There has been 140 closures and only 6 rescues of retail/leisure operators, since January 2018
• To date, May 2019, 24 companies have failed, 743 stores have been affected and 31,250 employees have been impacted.

How has this affected specific businesses?

Several UK high street retailers have hit the headlines after being forced to take action due to falling footfall, including:

• Select: Closure of 14 stores, despite 50 being earmarked. Additionally, they have requested for a rent reduction
• L K Bennett: A notice of intention for Administration was filed, leaving 41 UK stores at risk as well as 480 UK staff affected
• Poundworld: Saw the closure of almost 200 stores, as they faced liquidation
• Mothercare: 60 store closures with 77 stores having their rent reduced by 17%
• Toys R Us: Entered administration after failing to find a buyer, having implemented a CVA
• New Look: Closed 60 stores and cut 980 jobs after agreeing to a CVA
• Homebase: A CVA vote, left 45 stores to cease trading with 1500 jobs at risk

Despite this, six retailers have been saved. See the cases of House of Fraser, Arcadia, Office Outlet, Patisserie Valerie, HMV and Evans Cycles.

What’s caused this decline in high street performance?

Economic and political uncertainty, falling consumer confidence, changing consumer habits and rising inflation have all contributed to the long-term decline of the UK high street.

However, the most pressing factors impacting the retail sector in May 2019 were:

1. Low Growth Online

KPMG’s UK retail partner, Paul Martin, stressed: “The extremely low growth online is real cause for concern, especially with almost a third of all non-food sales today being made online. This trend has continued to manifest itself over the last year and requires real focus from the retail community.”

2. Business rates

Increased business rates are potentially the biggest single contributing factor when it comes to UK high street performance.

Gary Grant, founder of high street toy retailer, The Entertainer commented: “Landlords are being very realistic about their rent, but the one thing that is not negotiable are business rates.

“[The retail sector] is seeing many stores empty for long periods of time and the biggest issue is that [retailers] can’t open stores.”

“Business rates are out of line now with retail turnover. Business rates are the real killer. Any increase in cost where you have flat and declining turnover is going to put pressure on the bottom line.”

“The Government just haven’t got it. They need to take some responsibility for the high street’s decline.”

Likewise, Helen Dickinson, OBE, BRC’s Chief Executive, states how such rates prevent retailers from ”investing in their physical space. We have a broken tax system, which sees retailers paying vast sums of money regardless of whether they make a penny at the till, and yet the Government is failing to act.”

With the UK high street continuing to suffer, it pays to know your options as a company boss. Taking difficult yet decisive decisions at the right times will put you in the best possible position to keep your company trading successfully.

If you are worried about declining UK high street performance and the prospect of a CVA, contact the experts at Company Rescue today. Take a look at our site for many useful pages of advice.