The Business Exchange Bath & Somerset Issue 9: Autumn 2018 | Page 9

Retail and Restaurants in crisis –
How the high street can turn itself around
The last 12 months have been challenging for the high streets in
the South West, with a number of shops and restaurants fighting
for survival in an increasingly competitive sector. This has been
particularly noticeable in Bath and Bristol, where we’ve seen national
retail chains as well as local independents close down.
It is amazing to think that since
the start of 2017 we have seen
names such as Toys R Us,
Maplins, BHS and several other
big brands disappear.
According to the British Retail
Consortium, sales on the high
street also hit a 22 year low in
April 2018 – yet another blow
to the embattled shops and
restaurants that occupy this
space.
Research has revealed that
the profits of the UK’s top 100
restaurant groups had fallen by
64 per cent over the past year.
This led to 35 of the nation’s
leading chain restaurants being
classed as loss-making at the
start of 2018.
At the centre of many of these
crises on the high street has
been the company voluntary
arrangement or CVA.
A CVA is a contract between
a company and its creditors that
allow the struggling business to
restructure its debts.
Whilst other forms
of insolvency, such as
administration, require directors
to relinquish control of the
business, CVAs are favoured
as they allow the company to
continue to operate, subject
to the terms agreed in the
proposals.
In many cases, these
arrangements are used to
restructure a business by
selling off certain locations and
reducing rents at others, while
also making redundancies.
As an indication of just how
frequently these have been used
in the last year, even on-going
retailers such as Next have
introduced new clauses into
their leases that require rents
to be reduced if a neighbouring
competitor gets a reduction via
a CVA.
Despite the usefulness of a
CVA the high street still faces
major challenges in the months
and years to come.
Retailers are struggling
to match the prices and
convenience offered by the likes
of Amazon, while restaurants
are having to battle with the
introduction of delivery firms
such as Deliveroo, which are
making ordering food online
simpler and thus reducing the
appetite for eating out.
Generally, consumers are
opting for convenience or they
want a unique experience when
shopping or eating out, which
is where we have seen a boom
in some smaller independent
establishments that offer
something different from the
mainstream.
Outside of these consumer-
led issues, there are also
problems with rising business
rates, higher rents and
increasing staff costs.
Both the National Living and
National Minimum Wage have
grown significantly over the
last decade, often at or above
inflation. Meanwhile, employers
have also found themselves
having to comply with costly new
regimes, such as workplace
pensions via auto-enrolment – a
scheme that continues to ramp
up their contributions annually.
Often these factors have
a smaller impact on online
competitors that tend to occupy
cheaper industrial land and use
freelancers or self-employed
operatives.
In the case of some of those
companies that have failed in
by Rachel Hotham,
Insolvency Partner at Milsted Langdon
recent months, it has been clear
that their fundamental business
model was flawed, which is why
despite using a CVA they still
went on to go into liquidation.
Firms such as Toys R Us
just could not compete with
online competitors or those
that had both a strong physical
position on the high street
and a successful e-commerce
operation.
Looking ahead then, it is
inevitable that CVAs will continue
to play an important role within
the restructuring of high street
businesses, but in order to avoid
complete liquidation businesses
must re-assess their current
arrangements and decide
wheth er they can truly remain
competitive in the modern world.
This will only be possible if
they invest time and money into
reviewing their own business
model and KPIs and comparing
them to those of their
competitors.
We are already seeing this
process take place with the
merger of companies, such as
Sainsbury’s and Argos. Both
are able to play off their key
strengths, which has helped
them to subsequently draw the
attention of ASDA, potentially
making them the UK’s largest
retailer.
01225 904940
For more info:
www.milsted-langdon.co.uk
THE BUSINESS EXCHANGE 2018
9