Britain’s high streets, historically the backbone of our economy, are in trouble – you only have to open a newspaper or switch on the news to be faced with this fact. Retail stalwarts including Mothercare, M&S and Homebase have been hitting the headlines for all the wrong reasons, as they struggle to keep consumers interested.
Creditsafe’s most recent Watchdog Report confirmed this news, painting a sobering picture of the UK retail market. Figures showed that insolvencies from the UK’s retail sector rose by 59.4% over the course of a year, and there were 416 failures in the second quarter of this year alone, a marked increase from the 261 failures during the same period in 2017. Poundworld was the most prominent business to collapse, having failed to find a buyer after entering administration.
According to Creditsafe’s data, there has been a staggering rise in the level of bad debt owed to businesses in the retail sector during the second quarter of this year, specifically an increase of more than £51.5m, bringing the total up to £53.6m- an increase of 2464.5%. If UK retail businesses weren’t already feeling the heat, this amount of debt is sure to put the pressure on as companies try to stay afloat amid mounting collapses.
The latest giant to fall victim to the trend is of course House of Fraser, which seems to be experiencing fresh challenges on an almost daily basis. In August, Sports Direct founder Mike Ashley rescued the beleaguered department store soon after it collapsed into administration and quickly entered into negotiations with landlords. Mike Ashley believes rent cuts could save stores, but some landlords refused to play ball – the saga continues, no doubt further issues will have come to light by the time this article is published.
This is something that will surely make suppliers in the retail industry a bit uneasy – when an interested party swoops in on a sinking business, they are not obligated to pay what’s owed to these companies, and small suppliers that deal with these large retailers could easily go under with such a major dent in their cashflow. The issues this can cause was evidenced shortly after Mike Ashley bought House of Fraser, as disputes with suppliers resulted in a complete online shutdown, with all orders cancelled and the website taken offline.
So why have these companies fallen on hard times? E-commerce is, unsurprisingly, a major contributing factor. It’s no coincidence that as the bricks and mortar landscape grows ever bleaker, online behemoths such as ASOS now boasts a market value that exceeds the 134-year-old Marks and Spencer, while Amazon has former Homebase warehouses in its sights.
If Amazon is successful, we anticipate this could become more prevalent as time goes on. With more and more major retailers using company voluntary arrangements (CVAs) to close unprofitable stores, online retailers will follow in Amazon’s footsteps to snap up coveted physical sites in urban areas, making next-day deliveries easier. This is likely to put an even heavier demand on suppliers, as it could pave the way for longer payment terms and even fines being implemented for any supply chain and delivery issues, even if they are unavoidable.
We would hope that mistakes made by the likes of Carillion have been learned by now and won’t be repeated, but if a small handful of corporations monopolise the retail space, suppliers could find themselves backed into a corner and forced to agree to unfair payment terms.
Going back to CVAs, they point to another factor in the struggle of retailers – skyrocketing rates. Last year, the government revalued property. This resulted in business rates increasing in city centres but falling in areas further out of town where online retailers typically have warehouses. Reform is supposedly on the cards, but it is a race against time for many businesses hit by the rise.
However, this article isn’t all doom and gloom. The challenges faced by retailers actually presents a number of opportunities for smaller businesses and suppliers to the industry, who can be quicker to adapt to the evolving retail landscape than large and long-established high street stores, such as updating their offering in line with what consumers are gravitating towards; for instance, a more personalised, frictionless shopping experience, quicker responses to customer service queries, and a brand-consumer relationship that is founded on mutual trust.
Smaller firms can get ahead of the game before the waters get even more choppy – it could be time to enforce stricter payment terms or add interest for overdue payments – you don’t have time to waste chasing up serial offenders for payment when you should be running your business. Additionally, keep a close eye on admin – something that may seem insignificant, such as an incorrect purchase order or a billing error on your invoice, can really spell the difference between remaining profitable and sinking into the danger zone.
Businesses would do well to keep an eye on the way trends are heading – ‘getting ahead’ can also mean being reactive to the market in a way that major retailers could only dream of. Smaller firms have a real chance to grow their market share as original and locally-sourced products become more popular and demand for mass production declines. What changes could you make within your business that could give you an edge against larger competitors? Are there other local businesses that you could partner with? A company credit report like those offered by Creditsafe can tell you what you need to know about potential partners, and their financial health and payment history, so you can go after that big fish without worrying about any negative consequences for your company.
It may seem a little strange to suggest businesses target the retail sector when things are currently so precarious. However, big risks can pay off, and you have to be in it to win it. Taking a chance can put you ahead of the competition and the big retailers that are often tied into, and currently plagued by, long-term property leases are failing to adapt to the retail industry and shopper needs. It could be in the form of embracing those partnerships with like-minded companies to boost your profile or broaden your reach, or looking at investment in your e-commerce platform to match changing purchasing habits. Creditsafe’s Risk Tracker can be very useful for when you need to monitor changes taking place within any business that affects yours, allowing you to take a risk, but remaining protected.
We believe that there is a lot more change to come, as shopper preferences continue to shift, and large, predominantly physical stores simply can’t keep up. Opportunities for smaller businesses will be plentiful if they put themselves out there and react quickly to what consumers want – take a chance but remain savvy.
Chris Robertson, UK CEO of Creditsafe