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By Ralph Robinson, Head of Retail & Consumer Markets, BJSS
2020 has been littered with the failure of brands that have been a staple on British high streets for years, or centuries in the case of Debenhams and Arcadia. These were brands with heritage, stores on every corner, and millions of customers coming through their doors each year. But therein lies the very issue. Bricks have been increasingly eroded by clicks since the millennium. Still, the Covid pandemic took what was a gradual shift to its ultimate conclusion – the total temporary closure of the physical British high street. The trend of e-commerce growth and the decline of high street footfall, was no longer a navigable inconvenience, but the death knell for retail brands with expansive physical store networks, over-leveraged debt, heavy staffing, and, most critically, those with a culture which hadn’t adapted to the times. Putting the below brands into administration risked over 50,000 jobs, and nearly 40,000 remain with no employer. Furthermore 3,000 stores were put at risk, with over half of those still in the hands of administrators.
Whilst the failures that have already been cannot be undone, we wanted to try to identify findings that can prevent future ones. We’ve examined statistics from those UK retailers which went into administration in 2020, and reviewed three examples of high profile failures in the UK, and what we think can be learnt.
UK Retailers entering administration in 2020
Data Source: BBC News
The data on the above retailers entering administration in 2020 highlights two key points. Firstly, eight of the eighteen - nearly 40% of the brands listed - have been saved from administration, either through purchase, joint venture, or pre-pack deals. This at the very least should provide some hope for Debenhams and Arcadia, both of whom have had buyers circling for some time, and still have the brand value that could be leveraged by their former competitors.
Secondly, as the above shows, there is a clear trend between the age of the retailer and its likelihood to be rescued. Whilst more recently founded brands such as DW Sports, Oak Furniture Land, Go Outdoors and Victoria’s Secret, all found new ownership, those brands established in the early 1900s or earlier, such as Debenhams, Arcadia, TM Lewin, Beales and Peacocks, are all yet to attract new ownership. Whilst such heritage has typically been revered, the very traditional nature of these brands may have been their downfall. The commonalities we experience in these brands is of a lack of product innovation, of a traditional image and older customer base, and of an overreliance on bricks and mortar over e-commerce.
Three high profile failures
Debenhams’ failure was not a surprise to the market, especially since it had already entered administration in 2019 due to high store costs, and declining high street footfall. Still it was rescued in a pre-pack deal by its own lenders. The sad fact is that Debenhams’ very heritage is one of its biggest challenges. A concept that dates back to King George III’s reign, needless to say, risks not suiting modern shopping habits, a challenge all department stores are currently experiencing. This coupled with the huge overheads of a physical store estate of over 140 stores, declining footfall, and a lack of competitive advantage, meant that the loss of revenues due to Covid left Debenhams with little choice but to enter into administration.
The collapse of Arcadia was slightly less predictable, but still with many commonalities with Debenhams. Arcadia’s vast store estate, and mid-tier brand propositions of Topshop, Wallis, Dorothy Perkins, Burton and Evans had made it a dominant high street fashion presence in the nineties and early noughties. However, it struggled to remain relevant to younger generations, lacked innovation of brand or range, and the digital presence of modern rivals such as Boohoo and Missguided. They also struggled with profitability and pricing due to rising overseas manufacturing costs and invested heavily in window dressings and traditional media advertising, whilst rivals quickly switched to social media spend and influencer strategies. Finally, high profile media scandals proved unpopular with a Gen Z target customer base, who increasingly vote with their wallet.
The final example is Primark. Whilst not technically a failure, since it is still trading and a highly profitable part of ABF, it is nonetheless a red flag in terms of highlighting the risks of an all bricks and mortar sales strategy. Like other discount brands, Primark sticks to what it knows best – competitively priced, low to mid-range products, no-frills stores, and no e-commerce. Yet whilst discount grocers like Aldi and Lidl were able to trade through Covid, Primark was forced to shut its doors, costing it an estimated £800m in sales in the first lockdown and a further £430m in the second. Primark’s lack of e-commerce capability will be less of an issue now that stores are allowed to reopen. Indeed it is now citing “very strong trade” since reopening for Christmas. Still, the pandemic has highlighted a rare chink in its armour, and one, that surely can’t continue to be overlooked. In the case of a third lockdown, or another future pandemic, Primark might not be able to weather the storm as well as it did the first two, and its reserves may not last out. More importantly the whole time Primark stores are shut and delivering losses, online competitors such as Boohoo, Missguided and others are stealing customers, and growing profits to be invested into new ranges and lower prices for the Brexit filled start to 2021.
What can be learnt?
Embrace e-commerce at all costs
E-commerce isn’t going anywhere. The pandemic has nudged people into an “e-commerce first” mindset. According to Statista, only 23% of 18-24-year-old shoppers purchase retail goods only in bricks and mortar stores. Even in the over 65s it’s still only 50%. Omnichannel shopping is no longer optional – customers expect it like they expect a coffee shop on every corner. Of course, set up costs remain high, and return rates can make long term viability challenging. However, the pandemic has highlighted retailers’ abilities to pivot beyond previous expectations of the industry. We’ve seen many brands launch or adapt their offer to include limited online offerings quite successfully. A cautious entry to e-commerce is recommended for all brands with no online outlet, yet with a focus on a restrictive returns policy and realistic delivery commitments to protect against the longer term trap of overcommitting to a model that retail margins won’t sustain. Alternatively, with social media as an emerging and effective sales channel, it can be an excellent way to test the market before committing to a full online offer.
Reduce the financial risk inherent in a bricks first strategy
If the market requires a change of business model, and for overheads to be cut, then retailers must change quickly and decisively. Debenhams entered administration in 2019, cut insufficient stores, changed little in its core business model, and a year later found itself back in administration. If a trend is unstoppable (e.g. e-commerce) react decisively, but based on solid research. Changing pricing strategies which overcommit to unsustainable promotions, can support a more viable margin strategy. Review business rates, lease agreements and renegotiate wherever possible. Business leaders have proven their ability to renegotiate rising rates, and doing so is critical to building a platform for future growth.
Listen, learn, adapt
Brands need to challenge their position regularly and ruthlessly. Ensure your data pipelines allow you to understand your customers in detail, challenge every aspect of their user journey, and adapt accordingly. You can afford to stick to a heavily bricks and mortar focused model for longer if you have a very clear brand and attractive core proposition like Primark, but still not forever. If like Debenhams and Arcadia you rigidly stick to the middle ground, ignore changing trends, and keep a large estate of expensive stores, with high debt ratios, it leaves you highly vulnerable to long term market shifts like e-commerce, but even more so to dramatic market shocks like Covid. In the meantime, Primark remains ever-present, ever vocal, and ever relevant. We just hope to see more digital innovation so that is still the case in ten years time!
If you’d like to know more about our retail experience in the above, and how we’re helping retailers to adapt during Covid, do get in touch. We’d be happy to have a free of charge, no obligation chat.