There have been efforts by many struggling High Street retailers to improve their businesses by using an insolvency mechanism called the CVA (Company Voluntary Arrangement).
The most recent of these is Debenhams, which, having secured £200 million in new loans in March and followed with a pre-pack administration sale in early April, effectively wiping out its shareholders including the vociferous Mike Ashley who also owns Sports Direct and BHS.
It was acquired by new owners, a consortium of banks and hedge funds, who almost immediately launched a major store closure programme ultimately to involve 50 stores, in conjunction with a CVA aimed at persuading landlords to reduce the rent for remaining stores by up to 50%.
Debenhams’ sales had dropped by 7.4% in the previous six months but it has been argued that the store chain’s problems were more deeply rooted in its dinosaur-like lack of adaptation to the change in consumer buying habits.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “As an investment, Debenhams is a tale of woe from start to finish.
“The strategy since float was out of kilter with the changing habits of consumers. But even before the float [in 2006], its private equity owners had put the department store under financial pressure, by selling off a number of freeholds in favour of leasing them back.
“Hindsight is a wonderful thing, but the road to Debenhams’ ruin has been paved with poor decisions, as well as a dramatic shift towards digital shopping.”
Richard Lim, chief executive of Retail Economics said: “We should not understate the significance of this collapse. Debenhams has fallen victim to crippling levels of debt, which has paralysed its ability to pivot towards a more digital and experience-led retail model.
“Put simply, the business has been outmanoeuvred by more nimble competitors, failed to embrace change and was left with a tiring proposition. The industry is evolving fast and it paid the ultimate price.”
By contrast, a restructure announced by Majestic Wines demonstrates a fine example of retail turnaround agility, where the key word is “pivot”.
In 2015 Majestic bought Naked Wines, a subscription-based online business founded in Norwich by entrepreneur Rowan Gormley in 2008, and appointed Gormley as its CEO.
In March this year, he announced plans to close 200 Majestic stores and to rename the company as Naked Wines. According to Majestic almost 45% of its business came from online with a further 20% from international sales.
The Majestic business model had been to locate its outlets on cheaper out-of-town sites with parking and to sell wines sourced directly from producers in bulk only, in multiples of 12.
But with the change in consumer behaviour Gormley took the decision to restructure the business by pivoting it to online sales only – a potentially more lucrative option as it will release capital from the physical stores to invest in attracting more customers.
Mr Gormley believes that Naked Wines has the potential for strong sustainable growth and has said “We also believe that a transformed Majestic business does have the potential to be a long-term winner, but that we risk not maximising the potential of Naked if we try to do both.
His innovative restructuring may prove that his prediction of sales reaching £500m and of an increase in regular customer payments by 10-15% this financial year may well be correct.
There is no need for retail businesses to become dinosaurs but survival in a changing world requires vision and bold decisions.