It’s a tough time to be in retail. Ongoing financial pressures such as the cost-of-living crisis mean that shoppers are tightening their belts, coupled with high business rates and trading issues thanks to Brexit. Whilst the Covid-19 pandemic accelerating the switch to online shopping, the issues surrounding the death of the high street is something that has been talked about for many years now.
And the situation does seem to be getting worse. 6,000 retail businesses have gone insolvent over the past five years, causing the British Retail Consortium (BRC) to call on councils for a cohesive plan to reinvigorate shopping areas and prevent further store closures. The overall store vacancy rate across England rose to nearly 14% in the second quarter of 2023, with high streets taking the brunt of the closures.
Although high streets have traditionally been home to more independent shops than the more expensive shopping centres, large household names have certainly not been immune to the falling gavel of insolvency. This year alone we’ve seen some highly established and previously rock-solid businesses leaving the retail industry for good. The most recent is the Wilko administration, whose fall into insolvency earlier in the summer put 12,500 jobs at risk after they announced the initial closure of all 400 stores. Recent offers from B&M and Poundland have provided a lifeline to some staff, but certainly not enough to save everyone.
Wilko had seen both revenue and profits steadily decline, with competition rife from other discount goods stores. This, coupled with their prominent high street presence, which brought with it high rents, extortionate business rates and online shopping-driven lowered footfall, all combined into one of the biggest retail collapses in recent memory. You can read exactly what happened to Wilko’s finances by downloading Red Flag Alert’s company business report below.
Many other highly established brands, albeit not quite the size of Wilko, have also fallen victim to the brutal environment for retailers. At the start of the year, Tesco bought struggling stationary chain Paperchase, after they went into administration in late 2022. However, a clause in the purchase meant that Tesco only bought the brand and intellectual property and allowed all existing stores to close. Staff were still made unemployed, and the high street lost yet another staple.
Aside from the current macroeconomic pressures faced by all sectors, retailers are in a more precarious state due to a multitude of factors. Highstreet shops which were forced to shut their doors during the pandemic were largely protected from creditor enforcement by UK Government measures introduced under the Coronavirus Act 2020 and the Corporate Insolvency & Governance Act 2020. These Acts were designed to “safeguard the UK high street against aggressive debt recovery actions” whilst lockdowns were enforced, and they involved a temporary ban on statutory demands and winding up petitions. Landlords were also forbidden to forfeit commercial leases for the non-payment of rent during this period, so debt from 2020 and 2021 was pushed into the years following, and now we are starting to see the real consequences of this.
Since that time, with any protections expired, creditors have stepped up their debt recovery actions. Interestingly, HMRC is one of the largest petitioners, keen to recover any unpaid tax bills. For many retailers, this comes at a time when they are already facing unprecedented costs with wages rising, energy bills at an all-time high, and business rates due to go up 6% in 2024.
Dame Sharon White, Chair of the John Lewis Partnership, has called for a royal commission review to save the ailing high street.
“Now is the right time to carry out a root and branch assessment of how to breathe life back into our high streets, rebuilding communities and local economies,” she wrote on LinkedIn
“This would address a fundamental problem; that the issues dogging the prosperity of our high streets are complex and connected, but too often looked at in isolation. Planning, taxation, crime, environmental policy, housing and transport are all on the policy agenda, but must be considered as a whole to bring our high streets back to life.”
To find out how Red Flag Alert can help protect your retail business from insolvency, sign up for our free no-obligation trial and access our full software today. Or you can download our exclusive company report on Wilko, to see for yourself exactly what went wrong with the financials of the retail giant.