Bonmarché warns high street trading worse than 2008 recession

Bonmarché warns high street trading worse than 2008 recession

In August 2018, following House of Fraser’s entry into administration, we posted a short piece outlining advice to suppliers to retail businesses. Since then a number of retail chains have entered administration including Red Dog Music, Berketex, Cranshaws, Evans Cycles, Gardman Group, American Golf, Coast, Deciem, Arch Angelz, Orla Kiely and Salt Rock. Patisserie Valerie also struggled.

We are in the midst of the, historically, lucrative Christmas trading period, but optimism (and sales, and share prices) remain down, with retailers citing unusual weather, cautious shoppers, Black Friday discounting and Brexit. On 17 December, Asos issued a profits warning saying “Whilst trading in September and October was broadly in line with our expectations, November, a very material month for us from both a sales and cash margin perspective, was significantly behind expectations. The current backdrop of economic uncertainty across many of our major markets together with a weakening in consumer confidence has led to the weakest growth in online clothing sales in recent years. We have recalibrated our expectations for the current year accordingly.” Shares in Asos fell by 35% off the back of that announcement. In addition, JD Sports has lost 4.3%, Marks & Spencer has lost 3%, Associated British Foods (which owns Primark) has lost 1.2% and Ted Baker has lost 3.6%.

Earlier this month Mike Ashley, CEO of Sports Direct, revealed the company’s first-half results and warned that shopping had been so bad for retailers that it would “literally smash them to pieces”. Helen Connolly, chief executive of fashion retailer Bonmarché, warned that conditions were “unprecedented” and “significantly worse” than during the financial crisis. Similarly, Primark has bemoaned “challenging” trading and the “tough retail market”.

It seems probable that further retail insolvency is on the horizon. Typically, struggling retailers, assuming they are able to do so, will endeavour to limp through Christmas and the January sales, hoping to generate maximum cash. Our changing shopping habits mean that this window is a less reliable bail out mechanism than, say, five or ten years ago.

Mr Ashley, in giving evidence to the committee for housing, communities and local government, recently proposed imposing a 20% tax on the online sales of those retailers for whom online revenue accounts for more than 20% of the total, claiming, as others have done, that internet trading is hollowing out our high streets (of course, Asos, based on recent results, would say the internet has its own problems).

The Labour party, albeit one suspects for reasons different to Mr Ashley’s, are also concerned about the decline of the high street, proposing to ban ATM charges and stop bank branch and post office closures, provide free bus travel for the under 25s, provide free WIFI in town centres, establish a register of empty shops, and review business rates. Such plans, could misunderstand the reasons for and/or the magnitude of the change in our shopping habits.

Our Restructuring & Insolvency team has particular expertise in advising on retail matters, acting for directors, vendors/administrators, and purchasers. We partner with specialists in our Commercial, Intellectual Property, Employment, and Real Estate teams, among others, to deliver comprehensive and reliable advice. Please get in touch if we can help.