Evidently, retail is broken!

By Stephen Sacks

Stephen Sacks

After running numerous trading businesses over 30 years I sat down with my ever patient wife Harriet over Christmas 2016 and told her that I would launch an advisory business aimed at helping SME entrepreneurs navigate the numerous funding opportunities open to them in 2017. Rather creatively (not) I decided to call it Funding Nav. It’s USP would be in driving down the average cost and risk in external funding by utilizing free cash opportunities first and foremost. It was a hell of a first year as clients literally jumped at the chances we were offering to supercharge their businesses funding, we raised a fortune for some businesses and at the end of that year I wrote my first book, “Reboot Your Business,” to reflect all that I had learned.

The costs of operating a retail outlet have been steadily increasing over many years with upward only rent reviews, business rates and the minimum wage as well as a host of other costs.

At the same time, the amount of new space becoming available as mall operators expand their footprints such as Westfield in White City and Intu in Watford is increasing.

Yet online is increasingly where people hang out for all of their activities including work, leisure and shopping and there is a rebalancing of spending from stuff to experience.

So, obviously, retailers are turning to increasingly desperate measures in order to remain viable which generally seems to be the CVA where you get at least 75% of your creditors to vote for a restructuring package and then decimate your workforce, suppliers and store base.

This of course then passes the pain down the line to landlords and their pension fund owners and to suppliers and their banks and credit insurers.

This then comes full circle and creates a lack of trust in the retail environment starving it of investors and credit insurers and of course reducing the spend of customers whose pension funds have now declined meaning that either they need to pay in more or receive less, both reduce disposable spend, not to mention the decimated workforces.

I guess the whole point of capitalism is in embracing constructive destruction in which case, whats the point of the CVA mechanism? Surely better that these businesses fail quicker and are more quickly replaced by younger and more nimble concepts rather than the husks of last centuries failed concepts.

I think that CVA's merely pass the buck and prolong the agony, they are being misused and are blocking new growth and what is more research by Colliers shows that between 2008 and the end of 2017, 12 retailers undertook a CVA, and, of those, 10 subsequently went into administration. One of the two companies that survived, Mamas and Papas, managed to rescue the business by achieving rent cuts across 95% of its estate and gaining a cash boost of £20m. It also drastically restructured the business in that time.

I think retail is broken and will stay that way for longer because of the CVA and its misuse!

The funding issues are extreme since the credit insurance industry aren't mugs and won't continue to support this.