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Big businesses aren’t invulnerable
Since the start of the year, we’ve seen several big retailers start to creak under their financial pressure. Well known brands, household names and stalwarts of the high street all succumbing to insolvency.
Toys ‘R’ Us is all but gone, Maplin is looking set to follow, New Look and Carpetright have entered into company voluntary arrangements (CVA’a) with their respective creditors and elsewhere, B&Q’s sales are down. Moss Bros has issued a profit warning and Mothercare is in discussion with its bankers. As it stands, High Streets and Retail parks across this nation of shopkeepers are looking set to lose some of their most established shops.
What went wrong with retail?
The current financial climate has led to many consumers reigning back their own spending and when consumers do spend, they’re now more likely than ever to spend their money online rather than at a ‘bricks & mortar’ store.
Added to this, the cost of running a physical store is going up. The cost of renting premises is increasing, along with associated costs such as lighting, heating, and business rates, not to mention staffing. Online competitors, without physical storefronts, can pay less overall and work more efficiently, allowing them to charge lower prices. Many of the CVA’s we’re seeing are aimed at reducing the costs of premises, by reducing the number of stores or reducing the amount paid to rent them.
The fall in the value of sterling has been an aggravating factor for any firm buying in supplies from abroad. Such imports have become instantly more expensive, with little prospect of passing these increases on to the consumer.
There has also been a lot of criticism of Private Equity firms who buy companies using borrowed money, and then load that debt back onto the company the debt was used to buy. This can leave the business buckling under the weight of its own balance sheet and struggling to pay the interest. While increases in competition from online retailers is often cited as the main reason for brick and mortar stores faring worse, there’s increasing awareness that ‘venture capitalists’ may have to share some of the blame.
Could High Street retailers have avoided these problems?
With decreasing margins, decreasing sales and decreasing market share coupled with increasing outgoings and for many, over-exposure to debt, it’s a perfect storm and one which any business, large or small, might struggle to weather.
As with any business, the best defence against hostile market conditions comes in the form of well managed cashflow and a robust business plan. While they’re only as good as the information used to compile them, these essential documents allow a company to avoid a financial storm if possible, or to batten down the hatches and plot a course through it, if not.
There is only so much that can be done though. A business runs on its cashflow, if the money has run out, through circumstances, bad planning or both and no more can be found, it’s only a matter of time before the business will collapse.
If you’re worried about the future of your business, need assistance with compiling a business plan or have noticed that your cashflow is looking particularly stark, the sooner you take action, the better the outcome is likely to be. All businesses have trouble from time to time and if yours is one of them, why not seek help? It might just save your company!
Speak to us for a free consultation and take your first step towards a brighter future.