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Business Development & Marketing Cash Flow & Forecasting Finance General Rescue, Restructuring & Recovery Turnaround

Austerity fatigue, consumer behaviour and still choppy High Street waters

Tesco’s announcement of a halving of profits for the first half of the year suggests there is no clear sign that its turnaround plan is working.
It seems that any recovery in retail in general and the High Street in particular is still very uncertain.
While there is some evidence that consumers are spending a bit more, this is generally benefiting the “budget” retailers, such as Primark, Aldi and the near-ubiquitous variations on the Pound store theme, but not on larger items such as white goods or furniture.
As a small illustration of a fairly typical High Street, Ipswich has, in the last couple of months lost Gap and Next from its main shopping street, while Primark is in the process of expanding into the space left vacant. Also, with three High Street versions already on the Pound theme, a fourth has just been opened.
All this suggests that while consumers may be spending money, this may have more to do with austerity fatigue and the need for the occasional treat and there are still ongoing worries about job security, low interest rates and the economic future.
The one bright spot seems to be a growth in small niche and independent retailers who are benefitting from a shift to more frequent but lower value shopping by consumers.
The question, though, is whether such retailers can survive in the longer term, given the increasing pressure on their margins, prices and costs.

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Business Development & Marketing Cash Flow & Forecasting Finance General Turnaround

Retail start-ups – opportunity or lack of opportunity?

An estimated record 10,000 new retail businesses were launched in 2014 compared to 2013 according to Creditsafe, a company providing information on the health of businesses.
The new retail start-ups included shops, online retailers, cafes and restaurants and the development was being interpreted as a sign that entrepreneurs are leading the economic recovery partly because retail is seen as a major indicator of consumer confidence.
However, it remains to be seen how many of these fledgling businesses are still trading in 12 months’ time and whether this is indeed a case of entrepreneurs seizing opportunities or whether it is in fact a response to the lack of alternative opportunities.
It has been clear for some years following 2008 that retail is a volatile sector and has been in the throes of huge changes. While there are positives in the rise of the “shop local” initiatives aimed at supporting independent small traders, there has also been evidence that people have become very cost conscious and cautious in spending with smaller but more frequent trips to the shops.
Online shopping and a disenchantment with major High Street chains and edge of town superstores may indeed be a positive sign for the 10,000 fledgling retailers, but they will need to be very canny about pricing, marketing and controlling cash flow to survive.
We await the January post mortem on retail trade during Christmas and New Year, but already it looks like 2015 is going to be an interesting year.

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Finance General Rescue, Restructuring & Recovery Turnaround

The High Street is not dead

Since 2010 there has been a justifiable concern about the demise of the High Street.
This was fuelled by some big chains collapsing due to a reduction in consumer spending, a changing focus towards ‘value for money’ and the growth of shopping online or ‘out of town’.
But it’s not turning out quite like that. It seems we do still like the sociability of the High Street and the opportunity to browse and actually see and touch merchandise.
Amazon has recently announced plans to open its first actual store in New York, expected to be modelled on the lines of Argos, and surviving retailers have become more agile in adapting to what consumers want, so we now have click and collect.
Shopping patterns have changed to limit “brand loyalty” to one supermarket, hence Tesco withdrawing planning applications and selling land it had earmarked for more large stores.
There are also some signs that fewer people are doing a weekly “big shop”. There are noticeably more smaller High Street branches of the big four superstores, but also the rise of the budget stores like Aldi and Lidl because we also like value for money.
Smaller independent retailers are also proliferating according to research from the Local Data Company and the British Retail Consortium. They include e-cigarette shops, barbers, independent cafes and restaurants, clothes, crafts and gift shops.
It looks like the High Street is changing in character but we think it is a long way from being written off yet.
What do you think?

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Should Private Equity be involved in High Street retail?

 

2014 started with much media speculation that a variety of well-known retailers – or more correctly, their Private Equity(PE) owners were preparing to float on the Stock Market.

They included Fat Face (77% owned by PE firm Bridgepoint) Card Factory (owned by PE firm Charterhouse) and Poundland (76% owned by Warburg Pincus).

This resurgence of so-called “animal spirits” seems to be fuelled by a perceived improvement in consumer confidence, investor appetite driving the search for better returns than those available in a low interest rate debt market, the lack of debt available for refinancing businesses and the need for PE owners as investors to realise profits.

This may herald a resumption of the pre-2008 practice of PE buying out retailers, often as a public to private deal, repaying themselves by loading them with debt, and then flipping them back into public ownership.

The 2008 Global financial crisis put this practice on hold and indeed it has placed enormous financial pressure on some PE funds due to the lack of debt available for refinancing their acquisitions.

Indeed many PEs have ended up with burnt fingers, such as Guy Hands’ Terra Firma’s purchase of EMI,which defaulted on its debt to CitiGroup,  and US-based Bain Capital LLC (owned by Mitt Romney), which purchased the purchase of Toys “R” Us, which has seen a decline in revenue.

High Street retail casualties over the last five years have included Nicole Farhi, Comet, JJB Sports, Jessups, Blockbuster, Clinton Cards, Habitat, Focus DIY, Floors-2-Go, the Officers Club, Oddbins, Woolworths and MFI.  Some, such as Focus, JJB, Nicole Farhi, MFI and Comet were PE owned.

With banks having tightened up so significantly on lending in recent years PE sources of funding are inevitably more focused on investors such as pension funds and not surprisingly fund managers are generally risk averse being responsible for other people’s money.

Despite the economy picking up, the buy, refinance and flip PE model may not work in the way it did. The growth in online shopping, concentration of retail parks, intense competition and changing consumer habits may yet thwart many PE deals.

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Cash Flow & Forecasting General Insolvency Rescue, Restructuring & Recovery Turnaround

Will we see more retail failures in the New Year?

 

With a quarter day looming in December many retailers will be hoping for healthy sales in the run-up to Christmas in order to pay their rent.

We are led to believe that an economic recovery is consolidating and that 2014 will continue the upward trajectory, but on the High Street the picture is not so clear.

There is already some evidence that the pre-Christmas rush has been delayed with consumers waiting for last-minute reductions. Figures from the accountant BDO showed that High street sales fell in the first week of December by 4.1% in non-food sales to December 8, while online shopping rose by 25%.

Fashion stores seem to have suffered worst with sales in the first week of December down by 5.9% and H & M already launching a winter sale offering reductions of up to 60%.

Whether High Street shopping picks up in the next few days remains to be seen, but there is a likelihood that with wages lagging behind the cost of living and significant energy cost increases the much vaunted consumer-led recovery may not be as lively as hoped.

Complicating the picture is the growth of the “buy local” movement, which may encourage more shoppers to patronise their small, local independent stores for both food and non-food items, especially unusual gifts.

Looks like it might be an interesting start to the New Year.

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Banks, Lenders & Investors Business Development & Marketing General Rescue, Restructuring & Recovery Turnaround

Joined-up Thinking on Retail?

Everybody and his wife has an opinion on what should be done to revive the UK’s High Streets and retail.
They range from the defeatist “the High Street is dead” thanks to online shopping to the Portas Pilots that have given 27 towns in England approximately £100,000 each to try out new ideas.
We’ve had the pop-up shop idea, policy changes on planning, calls for a review and reduction of business rates and calls for the scrapping of town centre parking charges.
Now Bill Grimsey, former Chief Executive of Wickes has decided to do what he calls an alternative review of the High Street, after calling all of the above “tinkering at the margins”. He believes what’s needed is a complete solution encompassing health, education, housing and leisure as well as shopping.
K2 Business Rescue agrees.
People define the High Street in different ways but what’s really needed, we believe, are integrated communities that put less emphasis on shopping as a destination activity. 
For example it used to be the case in the City of London that there was nothing but acres of offices. There was nowhere one could pop out to buy a shirt, or a gift, or perhaps a few groceries. That has changed and it’s a principle that can be applied in High Streets around the country.
Stop press:  Latest to come from a review of Portas Pilots is a proposal to allow more empty shop to residential conversions in town centre side streets to stimulate footfall.  http://tinyurl.com/nj2knoy