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More than 17,000 UK shops forecast to close in 2020; plus what happens after the CVA?

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More than 17,000 UK shops forecast to close in 2020; plus what happens after the CVA?

More than 17,000 UK shops are expected to close in 2020 in what’s forecast to be another tough year for UK retailers.


Some 17,565 shops will shut down during the year, according to analysis by the Centre for Retail Research. The forecast is 9% higher than the 16,073 shops that closed during the course of 2019, according to the CRR’s Retail in Crisis end of year report. That’s 1,490 more shops than the 14,583 that closed in 2018.

 

The CRR figures suggest that during 2019, larger retailers closed 5,901 shops – 79% more than the 3,303 that shut during 2018. Independent retailers closed 10,172 stores in 2019 - down by 10% on the 11,280 shut during 2018.


Professor Joshua Bamfield, director at the Centre for Retail Research, says more shops will close in 2020 as customers spend less and retail costs rise. “The commercial pressures of higher labour costs, business rates and relatively weak demand will continue to undercut profits and force the weakest companies to close stores to enter administration,” he said. “The high street and suburbs will continue to decline.”

 

Among those closing in 2020 will be branches of Debenhams, with 22 stores scheduled to close this year following the department store’s administration last year and its subsequent company voluntary agreement (CVA). Its latest update shows that 19 of those stores will close in the next month, starting on Saturday January 11.

 

Other retailers that went into administration in 2020 include Bonmarché, Mothercare UK, Clintons, Select Fashion, Karen Millen, Jack Wills and Bathstore. While retailers including Jack Wills and Bathstore were subsequently bought by Sports Direct and Homebase respectively, all have nonetheless closed at least some stores.

 

More stores are also likely to be closed by retailers as they go through CVAs that have already been agreed, or as they more directly seek to renegotiate rents with landlords. Further CVAs are also likely, says Bamfield. “In 2020 further announcements from companies that have already gone through CVAs or administrations may well result in cutbacks on their existing operations,” he said.

 

In the next financial year the Government is set to extend the retail discount on business rates to 50% in England, from 33% in the 2019/20 year, says a real estate adviser. Robert Hayton, head of UK business rates at the Altus Group, said: “Whilst just 10% of retail properties in England are over £51,000 in rateable value and precluded from the discount, they still pick up 68% of the business rates burden for the entire retail sector.” He says there should be an additional stimulus for major employers faced with a standard rate of tax of more than 50%.

 

What happens after the CVA?

Meanwhile, figures from real estate company Colliers International, show that of 23 UK retailers that have gone through a CVA process since 2016, 13 had later gone into administration.

 

David Fox, co-head of retail agency at Colliers International, says CVAs may not be the right answer for retailers as they struggle to adapt to a new retail model. “In a retail world of structural change, where turnover or profit has not been covering debt costs, many retailers have been going into automatic administration or have undertaken a Company Voluntary Arrangement (CVAs),” said Fox. “The CVA was designed to help struggling businesses and to avoid administration by lowering costs, rent roll, undertaking store closures, reducing staff numbers. However, it does nothing to address the high debt levels. That requires restructuring, refinancing and/or debt write-off. As our analysis reveals, for many brands, the CVA, therefore, fails and an administration will result. It is clearly not a mechanism that can be guaranteed to deliver a long-term viable solution, it merely just delays the inevitable future failure pushing out the problems for the next couple of years, creating even more polarisation in the market place.”

 

He said that some retailers had taken a more opportunistic approach to CVAs, using them as a mechanism to free themselves from the leases or renegotiate terms on underperforming stores. “With rents reduced by CVAs, other retailers as such have started negotiating rents down, arguing that they want a level playing field, so landlords have been suffering across the board,” he said. “In turn this is having a country-wide negative effect on the viability of dozens of shopping centres.

 

“In a number of these instances some of the companies that have been through these processes have been a direct result of highly leveraged private equity buyouts, and the entire business model has been unbalanced by obligation to meet loan repayments. The private equity houses would use the debt to ramp up expansion and profile of brands, receiving capital inducements from landlords further leveraged against what can now be viewed in retrospect as high rents.

 

“In the context of wider structural changes within the retail sector and changes in shopping patterns, this process could be considered the game of today but the CVA of tomorrow – a sticking plaster solution to cover up a wider issue.

 

“Where once debt was seen as the solution to building businesses, in retail the participants access to lenders cash – shoppers, occupiers and landlords – has become systemic.”

 

Image: InternetRetailing Media/Paul Skeldon

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