Plenty of Britain retail behemoths have initiated a Company Voluntary Arrangement (CVA), enabling them to shut-down loss-making stores as a way to continue in the business and avoid going into administration. Since the beginning of 2018, about ten retailers and restaurant group have initiated a CVA or went into administration.
The history exhibits that 2008, the year when the financial crisis had hit the market, was the worst year in the history of the retail industry, as around 12 retail businesses had collapsed.
The ongoing crisis in the UK’s retail arena is set to bump the number of store shutdown above 1,000 as many high street retailers turned to bankruptcy to sidestep collapse.
London's high-street retail sector is experiencing cost pressures as business rates, and wages shot up. Also, footfall at the retail stores have also plummeted by 2.1 per cent in 2018, as per data revealed from Springboard. The online retailers are eating the market share of brick, and mortar retail business and shoppers are also turning intensively towards the online shopping.
UK based retail businesses like Debenhams, Topshop, Paperchase and Monsoon, are either preparing or anticipated to initiate CVA to revamp their business, with accumulate closure of more than one-fifty stores. In the last two years, after adding the above-expected closure, more than 900 retail stores closure triggered including HMV, House of Fraser and Toys R Us.
On a year-to-date basis, four retailers and restaurants groups opted for Company Voluntary Arrangement (CVA), with five more in the pipeline to initiate the same, indicating 2019 on the track to be a record year in the history of the retail sector.
Is private ownership responsible for the current mess within the retail sector?
Several advisors and fund houses claimed that the significant presence of private equity investors into the retail business is responsible for the current spate of retail insolvencies.
Recently, London based department store Debenhams filed for administration, and it was majorly owned by the private equity houses like CVC, TPG and lender Merrill Lynch.
Toys R U, which was owned by Bain Capital and KKR, collapsed last year and left around its 3,000 employees without work.
Head of retail research at Knight Frank, Stephen Springham said that the linkage between the collapse of retail business and ownership of private equity firms had been proven now, the retailer needs to be run as retailers, by retailers, and not as cash cows by investors, he added.
He also pointed out that, the hostile expansion plans designed by the private equity investors, which left retailers with truckloads of debt and sucked all cash before exiting them. Private investors are less concerned about the long-term survival and financial health of the business, he added.
As per the LDC data, initiation of CVAs in 2018, was most common in London, the south-east and the east of England.
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