It gives no one at Retail Week any pleasure that last week’s front page story about The Works being on the brink of administration came true even more quickly than expected.
It followed soon after Dolcis and Ponden Mill, and won’t be the last retailer to call in the administrators this year either. Behind every collapse are the sad tales of job losses and personal misfortune that inevitably result.
It’s no coincidence that many of the businesses hitting trouble are private equity-backed. These are invariably highly geared and, with the mood of caution in the banking world, those who have put up the debt are panicking.
It’s also no coincidence that these businesses occupy similar places in different markets. They are low-end retailers, lacking the scale to keep up with the value multiples, or the offer to attract those with money to spend (see page 18). That’s not to say that the retail market isn’t tough at the moment; it is unquestionably very hard. But the owners of these businesses and their backers have to take the blame too.
In the private equity boom, small and mid-sized retailers were bought and sold with extraordinary regularity by people who saw them as financial instruments. So the stores were underinvested in and the basics of product and service neglected. Combine this with the secondary locations of many of the stores and the advantage was handed to the stronger multiples, the supermarkets and the internet.
Whatever your ownership structure, no retail business can afford to neglect the basics. Sadly for many of these companies, it’s too late to turn things around.
The road to being a responsible retailer is paved with unintended consequences. Everyone is increasingly aware that Uzbek cotton is best avoided (page 3). Do that, though, and the grindingly poor producers in Bangladesh are hit hard.
Retailers get a lot of flak, but this case proves that the sector is trying hard to improve its responsibility credentials. To help, we’ve created a responsible retail channel on our web site, bringing together best practice and advice on how to deal with this thorny issue. You’ll find it at Retail-Week.com/csr.