Retail Sector Review 

by Derryck Blackman 
Risk Underwriter at Nexus CIFS

Consumer Confidence
Consumer confidence rose in January as shoppers eyed big purchases despite outlooks on the general economic situation remaining pessimistic. However, by April of this year the consumer sentiment indicator was the weakest for 15 months, as households became gloomier about the UK’s economic outlook. 

Footfall: Jan 2016-April 2016 
Retail footfall increased in January, up 1.4% on the previous year, while the national town centre vacancy rate was 8.7%, its lowest rate since July 2011. High streets saw an increase in footfall for the first time since July 2013 – much improved on the 4% decline seen in December.
However the numbers of shoppers visiting retail centres fell in April, in the latest evidence that cautious consumers are cutting back or going online to hunt for better deals. The British Retail Consortium (BRC) Retail Sales Monitor for April 2016 reported a second month in succession of zero growth.

Department Stores
  • More than 95% of landlords, suppliers and other creditors backed the BHS LTD CVA on 23 rd March. The approval of the CVA secured the short-term future of BHS’s 10,000 staff. However, following a lengthy bidding process aimed at saving the Company, it finally fell into liquidation on 2 nd June after none of the offers were judged acceptable by administrators Duff & Phelps.
  • Historic department store Beales has won the support of its creditors for a deal to slash its rent bill and potentially save the company from administration. Its proposals for a CVA were backed by 90% of the votes cast at a creditors’ meeting in London on 24 th March. Beales had said the rents on the stores in question – which did not include Poole or the flagship Bournemouth branch – were “dragging the group down”. 
  • Debenhams is putting its Irish arm into Examinership. The UK department store chain has 11 outlets in the Republic, all of which will remain open during the restructuring. The company said that its Irish unit has continued to rack up losses in recent years, compounded by high rents and other overheads.
Electrical
  • Maplin reported a 2.3% lift in like-for- likes over the Black Friday and Christmas period, boosted by sales of CCTV equipment, which were up 31.7% year-on- year, and drones. Overall sales were flat last year but business via the internet was up 15%. 
  • Price-matching with the likes of Amazon, as well as spring sales events, helped boost like- for-like sales by 5% at Dixons Carphone in the four months to April 30. The company expects to post full-year pre-tax profits of £445m-£450m when it reports annual results on June 29.
Entertainment
  • Four years since Waterstones was set to collapse, the bookshop chain has been restored on the back of physical book sales and another multi-million pound investment from its Russian owner. On the back of the investment, and an improved range of books, sales increased 1% to £392.4m in the year ending April 27, 2015. By comparison, sales fell 6% the previous year to £390m. Waterstones have also completely exited the e-books market, realising they could not compete with the likes of Amazon.
Fashion
  • Austin Reed Ltd fell into administration in April, amid a "challenging" retail market and cashflow issues. Administrator AlixPartners said in a statement that it had “explored all options” to sell the business but that a “viable solution which kept the business whole” had not been found. The Administrators will close 120 stores by the end of June, making 1,000 employees redundant 
  • Ted Baker continue to shine. In full year results ending 30 January, group revenue rose 17.7% to £456.2m, up from £387.6m a year earlier.Pre-tax profit jumped 20.3% to £58.7m during this period, an increase on £48.8m in the year to January 2015. - Operating losses at French Connection mushroomed in the year ending 31 January, hitting a £4.7m low compared with £800,000 in the previous year. This figure was accelerated by the clothing retailer's disappointing Spring/Summer sales which failed to resonate with customers amidst intense competition in the fashion space. 
  • Ben Sherman (04090249), the menswear retailer, was sold via pre-pack administration to the clothing supplier BMB Clothing in January 2016. There are 10 UK stores (3 to close immediately), 10 UK concessions in the House of Fraser and 10+ in major overseas destinations.
General Retail
  • The value shoe retailer Brantano UK went into administration in January, leaving 2,000 jobs at risk just three months after it was bought by a specialist retail investor. Subsequently, the Co. was bought out of administration by a company controlled by Alteri Investors, which initially acquired the brand four months ago. Unsecured creditors were owed almost £19m at the time of the insolvency. 
  • Sainsbury’s has won its bid to take over Argos in a £1.4billion deal that could see the closure of 200 Argos stores. They are set to merge the two companies, with the catalogue business operating from outlets inside Sainsbury’s shops. Under the plan, some Argos stores on the same high streets as existing Sainsbury’s will be closed.
SUMMARY 

We appear to have reached a pivotal point for the future of the UK High Street. Shopping habits are fundamentally changing and many commentators feel the High Street is in terminal decline. With no further increases in footfall predicted, the prospect of more retail failures this year appears inevitable. Fashion is currently the most vulnerable sector, with the failure of BHS and Austin Reed in the same week resulting in potentially 12,000 job losses. Consider, M&S’s share of the clothing market has contracted for 17 consecutive quarters and even Next posted a lacklustre winter trading update in January, blaming the warm December weather for a disappointing trading performance in the run up to Christmas. Other sectors such as electrical and entertainment appear to be holding up better and it will be interesting to see if the forthcoming major sporting events (Euro 2016 and The Rio Olympics) continue to have a positive effect. 

Shoppers are now looking for a seamless connection between online and physical stores - they are seeking a good ‘experience’. Stores need to either compete on price or offer a real instore experience (i.e, Apple). It’s probable the new emerging High Street will have to focus on creating experiences in order to survive in an environment where your brand history stands for less than your number of Instagram followers.

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