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10th January 2019

Retail Round-Up 2018

By John Leasure

It has been an undeniably tough year for retail, and retail on the high street in particular.

Whether attributable to the continuing impact of competing online offerings, an underlying shift in consumer activity, or Brexit – indeed, even the weather has been ascribed as a meaningful factor in driving down demand – the certainty is that the sector remains challenging in the extreme.

However, the outlook has not been universally bleak.  The year has seen positive results for some – particularly online retailers such as the Boohoo Group who continue to see strength and growth in their offering.

Now 2018 has drawn to a close, the following is a brief review over of the last 12 months of the good, the bad and the ugly….

The Good – The Christmas Crackers

Christmas is always a key time for the retail sector, being seen by investors as its annual blood-pressure and general wellness check.  Whilst many key retailers have yet to announce their results, so far there has been good (if not great) news for some, most notably:

  • Ted Baker – a rare positive glimmer in the retail fashion sector, Ted Baker has reported a 12.2% increase in sales for the five weeks to 5 January, with its online platform sales being seen as a key factor in such growth.
  • John Lewis – underlying sales at its department stores rose 3.1% over the 6 weeks to 30 December with an accompanying 11.1% surge for Waitrose on year-on-year sales for the closing week of 2018 (although it is worth noting that the partnership’s financial year to date remains broadly flat).
  • Greggs – having raised its profit forecasts twice in 2018 (now up to £88m), a strong Christmas period saw like-for-like sales up 5.2% for the final quarter of the year for this stalwart of the high street. Its shares have risen a remarkable 46% since October and the business remains confident of its trading expectations for 2019 despite market challenges.
  • Aldi – with the week before Christmas reportedly the business’s busiest ever and total sales during December at almost £1bn, Aldi continues to celebrate its form notwithstanding fears that its growth may slow as 2019 progresses.
  • Next – whilst perhaps a little disingenuous to see it as a true “winner” in light of a drop in store sales and the recent downgrading of its profit forecast, its investment in its online offering has paid dividends with the rise in such sales more than compensating for the drop-off of traditional “bricks and mortar” turnover over the Christmas period. Such online gains are expected by the company to continue and be extended as 2019 progresses.

The Bad – The Dearly Departed 

  • Toys R Us – the first major victim of 2018 entered administration in February, unable to continue to maintain its estate of large out-of-town warehouses in the face of cheaper competition and the falling pound.
  • Maplin – hours after Toys R Us floundered, one of the UK’s largest high street electronics retailers announced its own difficulties before finally closing its doors for good in June – online competition was frequently cited by management as a key factor in its decline.
  • Poundworld – tales of decreasing footfalls in our high streets and weak consumer confidence together with allegations of poor management met the announcement of every bargain-hunter’s paradise slipping into administration in June.
  • House of Fraser – the height of summer saw this well-known department store run aground and enter administration after experiencing significant trading difficulties over recent years. Sports Direct’s Mike Ashley “rescued” the business for a mere £90m – time will tell if this was a bargain “gem” or one high street investment too far for the retail mogul.
  • HMV – Christmas didn’t bring much cheer for HMV, entering administration even before the New Year had started. This despite its owner, Hilco Capital, reportedly investing £4.5m in the business over recent months.

The Ugly – The Rise of the CVA

For many landlords 2018 has seen a further unpleasant trend in retail – the rise of the company voluntary arrangement (“CVA”).

Retailers Homebase, Mothercare, New Look and Carpetright together with restaurateurs Prezzo, Byron and Jamie’s Italian (to name but a few!) all sought to reach “voluntary” arrangements with existing creditors and landlords resulting in the closing of hundreds of stores, outlets and restaurants across the UK.

Landlords angrily decried paying the price for what they perceive to be their tenants’ poor investment and business strategies and external market factors (such as the falling value of sterling).  Tenants are quick to point out that the flexibity that comes with a CVA is often essential in keeping struggling retail offerings alive – better to have less than none, they argue.

What is certain is that – for the moment at least given market conditions and Brexit uncertainty – CVAs are likely to become a familiar feature of the retail landscape.

2019 – The Wild, Wild West?

With the significant impact of both overt and underlying factors within retail markets looking set to increase, it is easier to predict the British weather than hazard a guess at what another 12 months in the sector may bring.

The only thing which can be said for sure is that with mounting Parliamentary “threats” of new legislative interventions, the temperature of landlords and investors rising to dangerous levels and tenant challenges continuing to force major change to even the most established business operations, out on the frontier of retail only the strong and the brave will survive and flourish in 2019.

To read more on CVAs, see Sarah Finch’s recent article: Will we no longer be hearing His Master’s Voice on the High Street?

Retail Round-Up 2018

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