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Why are store closures such a hot topic now?
2020 was an unprecedented year, with the Coronavirus health crisis and the impact of nationwide lockdowns and tiering creating never-before experienced circumstances. For retailers across all sectors, though most significantly in non-food, there have been necessary story closures, a shift to online that was unprepared for and issues with supply chain and product availability.
Added to this, weary consumers who were already anxious about the impact of Brexit and what it may mean for the economy and jobs are now reeling from months of furlough schemes and job losses, with no end in sight as 2021 picks up where 2020 ended. Essential spend has become unpredictable as consumers scour the internet for bargains and offers alongside being more discerning about what they chose to buy and from where, whilst much of the available discretionary spend is being cautiously saved in preparation for an uncertain future.
Shopping has become a less-pleasant experience overall, especially in physical stores where social distancing and increased hygiene measures, coupled with worries about health and safety whilst away from the home.
It’s a tumultuous time for retailers and for many, the combination of factors at play as a result of the challenges brought about in 2020 are rendering businesses unviable for the future. Store closures or administration, property portfolio rationalisation and store transformation are just some of the possible options that retailers may need to consider.
What are the options for struggling retailers?
If it’s looking unlikely that a business will be sustainable in the future, it may be that taking action now is the right things to do. The most common options available are:
- Closing part of a store portfolio and transferring stock to the remining stores as part of a rescue strategy
- Selling part of all of the business as a going concern
- Placing the business into insolvency as part of a closure strategy
What’s the scale of the problem?
For 2021, it’s obviously unknown but the Centre for Retail Research (CRR) predicts that the first half of 2021 could see job losses in the sector of around 200,000 and a lot more bad news about corporate failures.
Looking back at 2020, almost 176,800 jobs were lost in as a result of almost 16,000 stores closing. These break down as:
- 6,330 stores closed as a result of administration
- 533 closed as a result of a CVA
- 8,884 stores closed as a result of store rationalisation programmes
For 2021, it’s obviously unknown but the Centre for Retail Research (CRR) predicts that the first half of 2021 could see job losses in the sector of around 200,000 and a lot more bad news about corporate failures. Looking back at 2020, almost 176,800 jobs were lost in as a result of almost 16,000 stores closing. These break down as: • 6,330 stores closed as a result of administration • 533 closed as a result of a CVA • 8,884 stores closed as a result of store rationalisation programmes
Who can make a retailer insolvent?
An insolvent company can be liquidated either due to legal action from disgruntled creditors, or at the director’s own request. A court-ordered liquidation is known as Compulsory Liquidation, whereas a director-initiated liquidation is done through a process known as a Creditors’ Voluntary Liquidation – or CVL. While it may seem counter-intuitive for a director to place their own company in liquidation, in many cases it is the most appropriate course of action.
Once a company becomes insolvent, its directors have a legal obligation to place the interests of the company’s outstanding creditors above those of the company and its shareholders/directors. This means creditors' positions should not be worsened or their losses made any greater. In some cases, this will mean an insolvent retail business will need to close its doors immediately in order to preserve the value of the business and the stock. In other cases, however, the store may be allowed to continue trading if it is deemed this would benefit its creditors.
Is there still a place for physical bricks and mortar retailing?
Absolutely; just not as we know it. With changing and more demanding consumer behaviours, retailers who can offer a more experiential interaction combined with seamless omnichannel service are most likely to flourish as the high street recovers. There’s also a real push towards more independent and local businesses offering one-off or home-grown product with consumers prepared to pay a premium for a more ethical purchase, so it’s likely that smaller brands, albeit in shared space, may find longevity in physical stores.
Customer service and the customer journey will be key, with consumers expecting retailers to use what they know about individuals to tailer their offering in both the online and offline space. Technology is going to be increasingly important, as is the ability to engage in conversation with communities and individuals alike to maintain brand loyalty.
The health crisis has amplified and accelerated transformation within the sector but for many, it’s likely that it’s more than just the impact of 2020 that affect long-term viability.
Where store closure or repurposing is being explored, there are numerous opportunities available to maximise the realisable assets in a physical store and to transform the interior ready for its next purpose – whether that be as a shop or as an office, community building or even conversion to residential.
What will happen to the properties left vacant?
There are two likely scenarios – landlords will either need to slash rents to attract new tenants or the premises will be repurposed for future use.
The issue of vacant stores, particularly in the high street, is a subject of much discussion with varying opinions on what would be the most sustainable solution. From conversion to residential through to creating mixed use community buildings, there are many views on the best way forward.
In the short-term however, with the economy struggling in the wake of the Covid-19 pandemic, it’s likely that many empty stores will, for now, remain empty.
Managing store closures. What you need to know
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