Bloodbath on the High Street will continue

IT HAS BEEN said that there has been a “bloodbath” in the High Street following the June quarter day with the collapse of Habitat, Haldanes, Moben Kitchens, Dolphin Bathrooms and Jane Norman.

These administrations follow on a first-quarter jump in retail administration appointments of 55%, according to statistics published by the Insolvency Service.

Some blame global warming and the resultant weather – a warm April and May postponing the inevitable followed by a horrid June. In reality, the sad truth for high street retailers is a more endemic problem – 31% of consumers are shopping more online and 22% are now buying non-essentials in supermarkets rather than from specialist retail chains (according to R3).

Landlords are generally sensible enough to know when they need to agree to reduce rent in order to preserve their tenants as in the case of Blacks and JD Sports. However, there are sometimes circumstances, or third-party pressures, that preclude them from negotiating. Perhaps the landlords believe their tenants are crying wolf when seeking to agree a rent reduction; if so, these recent collapses will prove them wrong.

The face of the local high street is changing as a result of the collapse or removal of many High Street names: Tesco Express is replacing many specialist retailers.

Restaurants funded by redundancies

Restaurants of all national cuisines and local coffee shops are populating the previously empty units. Many of these are start-ups funded by middle managers’ redundancy packages. They are all potential targets for famous chefs to film kitchen nightmares.

Restaurants are a highly specialised business that require training and experience; they are not suitable occupations for an enthusiastic amateur. If one is going to open a restaurant or coffee bar one must, at the very least, employ experienced chefs and managers.

The real victims of the collapse of high street retail chains are not only the landlords but perhaps more importantly the small specialist suppliers to those shops. They will have suffered bad debts that might not have been insured (as credit insurance can be very cumbersome and expensive) and they could prove irrecoverable out of the insolvency.

They should attempt to recover any goods supplied under reservation of title (RoT) for which they had not been paid, as at least they might be able to sell the goods recovered elsewhere. However they could have difficulties finding alternative outlets for their products now or in the future.

Directors, and their accountants and advisors, of companies that are suffering the fallout from the High Street bloodbath must be extremely vigilant to ensure their companies do not become unintentional collateral damage.

• They should immediately review and revise as necessary their profit and cash flow forecasts.
• They should ensure they have adequate financing arrangements in place to cover any drop in their cash flows.
• They should manage their working capital particularly carefully during these difficult times, collect debts as quickly as they can but pay their creditors as slowly as possible.
• They should ensure they reduce stock levels to the minimum and review slow or obsolete lines and adjust their production schedules as necessary.
• They might need to reduce staffing levels and renegotiate their terms of purchase and sales.

All perhaps obvious measures but nevertheless measures that are often not addressed until too late. If directors do not feel competent or comfortable to make these difficult decisions, they should call in their accountants or financial advisors, who can assist them in a professional and compassionate way.

The old adage that “cash is king” has never been more true than now. Cash is the lifeblood of any business and cash management is the most important task of any business manager. They should call for help before it is too late.

John Alexander and John Dickinson are insolvency practitioners at Carter Backer Winter LLP