The high street faces challenges like never before, but how can retailers restructure to help weather the storm?
Pannone Corporate

The British high street has seen a number of significant casualties over the course of 2020, as the sector has faced unprecedented challenges – a word too often overused during the pandemic, but one that is fitting given the strain businesses have been put under.

National and localised lockdowns have forced non-essential retailers to close their doors for significant periods, while reopening has triggered restrictions on capacity and extensive store remodelling to manage footfall in a safe and controlled way.

One of the many high-profile retailers to suffer at the hands of COVID-19 is Edinburgh Woollen Mill – which, together with Ponden Home, called in administrators earlier this month [November], as it closed 56 stores with job losses reaching more than 900. It’s difficult in the current economic climate to point to anything other than the global pandemic as the cause of EWM’s demise, but it does appear that the trading conditions caused by the coronavirus, and the subsequent lockdowns, have primarily led to Edinburgh Woollen Mill’s administration. Comments from the administrators suggest that the brand was trading well pre-pandemic, but the strain of the last six to seven months seems to have created irreparable issues.

The perception is that Edinburgh Woollen Mill’s primary target demographic has either been reluctant or unable – particularly in the case of stores based in tourist-dependent locations – to return to stores because of the pandemic and the restrictions imposed as a result of it. In that respect, the pandemic has clearly been a very significant factor in the situation reaching this point.

Other brands in the EWM Group have also fallen victim to COVID-19, with Jaeger and Peacocks also going into administration only last week [19 November], placing 4,700 jobs at risk. The loss of three brands under one group may be seen as somewhat surprising. At this time of the year, I would expect to see retail businesses attempt to ‘hang on’ in the hope that Christmas trading might improve their position. Clearly, EWM, Jaeger and Peacocks did not feel that was viable here – most likely because of the continuing uncertainty around what impact the restrictions will have moving into December.

Planning and anticipating the future is almost nigh-on impossible in 2020. But, when asked recently by Retail Gazette, ‘does Edinburgh Woollen Mill have a future in the UK?’, my immediate response was, ‘I certainly hope so’. The administrators are trading a significant proportion of the business and continue to look for a buyer. By closing 56 stores, which it’s assumed were underperforming, the business should now be a more attractive proposition for a potential buyer.

The fact of the matter is there’s clearly value in the brand. It’s well-known, with strong customer recognition and trust, which is extremely valuable in the retail sector. There’s an opportunity here for any potential buyer to restructure and streamline the business with a view to trading the brand successfully moving forward.

And that is the key for many retailers that are struggling during irrepressible trading conditions. Businesses and their directors should be alive to the possibility of taking action to restructure or streamline their position before formal insolvency becomes inevitable. There are a number of ways to achieve that – administration isn’t the only option. We’ve seen a significant number of CVAs in the retail sector over the last six to 12 months and there will undoubtedly be more looking at this option. CVAs are often attractive because they allow businesses to minimise the issues that loss-making stores are causing them, while focusing on the sites that are more profitable. Restructuring outside of a CVA/formal process is also a viable option and I’m sure businesses will be reviewing all of their options in that respect.

The decision to go into insolvency will not have been taken lightly by EWM. Whilst the administrators have indicated that the pre-pandemic trading performance was good, it’s probably fair to say that this was a business facing familiar problems caused by the general decline of the high street. Those issues will have been significantly exacerbated when COVID-19 struck. The immediate closure by the administrators suggests that those sites were either trading at a loss, breaking even, or operating at only a small profit. It would then have taken only a few weeks’ reduced income for those stores to become something of a millstone for the rest of the business.

The challenges that Edinburgh Woollen Mill is facing are the same for the majority of the retail sector –  a significant reduction in income and uncertain trading conditions moving forward. Unfortunately, as a result, I would expect to see an increase in retail insolvencies in due course. However, I don’t think we will see that immediately. A lot of retailers, if they’re able to do so, will try and continue operating over Christmas in the hope that will bring increased income. The extension of the furlough scheme until March 2021 will also be crucial for many retailers – it has clearly enabled many businesses to weather the storm so far.

At some point, however, businesses will have to reckon with the end of government support and an increase in creditor pressure. The reduction in income suffered over the course of this pandemic will not make that easy. Nothing is inevitable, and the hope would be that businesses can find restructuring solutions which will prevent them from going out of business entirely, but an increase in insolvency numbers over the next 6 to 12 months does look likely at this point.

Daniel Clarke is Associate Partner, Corporate Services, at Pannone Corporate



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