Bust: a bad week in the high street

The wave of administrations prompted by the quarter day appears to have abated for two full days (notwithstanding confirmation of TJ Hughes’ status this morning), but it was a powerful illustration of the fragility of the consumer economy.  Businesses that get sick are less likely to get better, and more are likely to die.  The net result has been around 10,000 job losses.  That number may be lower if – as has happened with Jane Norman – some stores are sold on, and continue to trade, but it’s a terrible toll for the sector to take in a week.  And immediate job losses are always followed by collateral damage – if these stores are shuttered, there will be fall-out among out-sourced service providers – security guards, aircon engineers, delivery drivers – and among suppliers, dependent on the income stream from the failed retailers.

Other retailers have been sharing their troubles – Thornton’s will close over 100 stores, Carpetright’s profits have fallen by 70%, and Comet has been put up for sale by parent group Kesa.  HMV’s kitchen-sinked loss for last year was £122m.

These companies – still in business, contrary to the crass assertions of Sally Bercow – are all PLCs, so their suffering is reported every step of the way.  Public companies aren’t necessarily better protected from failure than private companies (Woolworths…), but their travails are clear to all, and their institutional shareholders can force management to take action.

The businesses that have gone to the wall – TJ Hughes, Jane Norman, Habitat, Homeform, Life & Style; and before them, Oddbins, Focus and many others – were privately owned.  This won’t have meant that their owners and managers fought any less vigorously for their survival, but it can mean that their demise comes as a greater shock to the public at large – they only talk to the press when they want to.

Internally, of course, the signs will have been clear – the loss of credit insurance; falling confidence among suppliers causing a tightening of trading terms; and these pressures plus stagnant sales (and discounted margins) squeezing cash, so that the accounts department becomes one big cashflow management machine.  Spending is cut on payroll, store maintenance, travel, entertaining, and a siege mentality kicks in.  Long-established management teams will do everything they can to save their child from drowing; more recently appointed “turnaround teams” will be more pragmatic, and see clearly where the road is going to end.

And more often than not, it ends on the quarter day, when another three months’ advance rent falls due.  Landlords are less malleable than other creditors – they have more to lose, so lawyers will be instructed if no payment is made.  And the curtain falls.

Sadly, I believe this is unavoidable, long-term “structural realignment”.  Consumers cannot choose the extent to which they will support public sector pensions or defence overspends through their taxes, but they have decided to spend less, at fewer shops, with a greater volume of online purchases.  Their decision-making is more rational than it was in the credit-crazy boom.  Strong, prudent retailers like Next or Sainsbury’s can entrench their positions, and adjust their offer to suit the national mood.  Weaker businesses have failed, and will continue to do so.

However, to end with a glimmer of light: I do believe that recessionary times are ideal for setting up new retail businesses with an understanding of the current picture, an eye to the future, and no heritage or fiscal baggage to hold you back.  Let’s hope some of the 10,000 job-seekers are soon re-employed with tomorrow’s retailers.

Photo: Daily Telegraph