At the beginning of January we wrote an article detailing the ‘perfect storm’ that was brewing in the retail sector that promised to bring a slew of insolvent retailers in 2016. Although retail failures following the Christmas period are not unusual, the experts were warning that 2016 could see a higher-than-usual rate of insolvencies. This has been put down to warm autumn weather, intense competition and unprecedented discounting. The result was an autumn season Asos.com chief executive Nick Beighton described as “the most difficult on record”.
Just a month into the new year and it seems this premonition is coming true. The e-retailer Atterley and manufacturer Hawick Knitwear have already entered administration; while footwear chain Brantano UK has also collapsed putting some 2,000 jobs and 140 stores at risk.
There’s nowhere to hide
Christmas is an extremely important time of the year for retailers. The success of a retailer is determined from October to December, with this three month period accounting for up to 40 percent in annual sales. Retailers that don’t hit their sales volumes are left with nowhere to hide.
Retailers have to adapt to the weather, handle the supply chain and adopt a coherent discounting policy to attract the sales they need. Retailers also have to compete with leisure activities for the shoppers’ spend. Figures from Barclaycard show in-store sales figures slipped by 2.3 percent in the first 10 days of December. Meanwhile, sales in pubs and restaurants grew by 18 percent and 16.4 percent respectively.
Creditor pressure intensifies
Against this increasingly competitive backdrop, the pressure from lenders intensifies in January. Banks and investors look to extract as much money as they can from troubled firms in case they collapse. They know the tills are full after the Christmas rush and do all they can to recoup their funds.
There are also additional financial pressures caused by looming rental payments at the end of the March. If a poor Christmas period is supplemented by a bad start to the new year, many retailers can struggle to pay their rents in March. Many retailers have too strong a presence on the high street, and these rental payments can be the final straw.
It tends to be the stores who are yet to develop a strong multichannel offering that struggle in this unfavourable retail environment. The modern retail market is all about customer experience. The better equipped retailers are to service customers where, when and how they want, the more likely they are to survive.
Retailers that still have too many stores have two choices: they can pay off the landlords and staff of underperforming stores, or become insolvent and enter into administration or a company voluntary arrangement (CVA).
Changing buying behaviours
Every business, particularly retailers, can go through a temporary blip that results from external factors such as freak weather conditions. In this case, businesses have to do their best to ride out the storm. However, the real problems in retail come from bad buying and pricing decisions.
Reducing the level of stock retailers hold is an excellent way to mitigate the impact of adverse weather conditions. Debenhams and Fat Face changed their buying patterns to cut back on traditional winter orders like heavy knitwear and outerwear.
Given the current level of competition on the high street, many retailers are simply buying too much stock. The result is heavy discounting. Retailers that want to achieve a full price should reduce the amount they buy. Bricks and mortar retailers should also look at tie-ups with leading online brands to increase footfall. An example is Asda offering a collection point for the e-retailer Missguided in its stores.