2018 was a tough year for UK retailers with extreme weather, fragile consumer confidence and rising business rates making it challenging to run profitable stores. The high street is no longer the central place for shopping with consumers increasingly buying everything online from toys to lawn mowers. As a result, many retailers closed stores or folded completely and those who survived have had to be agile and adaptable to flourish in today’s reimagined high street.
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Retailers dealt with a raft of challenges during 2018, from the uncertainty around Brexit, the ‘Beast from the East’, and the summer heatwave, and unsustainable business rates forced a number of retailers to close some or all of their stores. Since 2010 retailers have experienced a 19% rise in business rates, which are applied unevenly across the country, and whose value continues to rise year on year. These are set to rise again in April 2019.
Wesfarmers’ acquisition of Homebase may well go down as the worst investment of all time after selling the retailer for a nominal pound in 2018, two years after paying £340 million for the brand. Misguided retail strategy, alienation of existing customers and poor implementation contributed to its failure.
‘Click & Collect’, Black Friday and the popularity of mobile commerce have boosted online sales across sectors, resulting in stores becoming less profitable. Retailers that were locked into long contracts suffered as they struggled to be agile enough to cater to the demands of ‘digital’ consumers. The UK Government announced a digital services tax in October 2018 reflecting this change in consumers’ buying habits.
The impossibility of handling upcoming debt obligations as profits shrink leaves seeking more favorable conditions from creditors as the only choice for distressed retailers. CVAs offer the opportunity to restructure businesses, while continuing trading. This improves the possibility for retailers to survive in the medium-term.