Shoppers are deserting the high street in greater numbers than during the depths of the recession in 2009, creating a brutal climate that is putting thousands more retail jobs at risk.
The coming days will be crucial to the future of a handful of household names, including Mothercare and Carpetright, which are trying to persuade investors to make vital cash injections so they can jettison unwanted stores. There is also the spectre of job losses at Poundworld, the struggling discount chain, which is being cut adrift by its American owners.
Dwindling shopper numbers tally with weak spending figures for April, which show Britons slashed spending on gadgets, furniture and even nights out. Consumer spending dropped 2% last month, according to Visa’s consumer spending index, which has recorded declines in 11 of the past 12 months.Footfall data
“With inflation beginning to fall and wages growing faster than expected in recent months, it would have been easy to assume we might be over the worst of the consumer squeeze,” Mark Antipof, the chief commercial officer at Visa, said. “Yet there has been no corresponding improvement in spending. It is clear that consumers remain in belt-tightening mode.”Footfall across the UK
High street visits declined 3.3% in April, according to the BRC-Springboard monthly tracker, which also highlighted nearly one in 10 town centre shops are lying empty. The drop in footfall came on the back of a disastrous performance in March, when shopper numbers declined by 6%. Taken together there has been an unprecedented 4.8% drop over the two months – a bigger decline than was recorded in the same months of 2009 when the UK was mired in recession.
“Not since the depths of recession in 2009 has footfall over March and April declined to such a degree, and even then the drop was less severe at -3.8%,” said the Springboard analyst Diane Wehrle. “Much could be made of the adverse impact on April’s footfall of Easter shifting to March but even looking at March and April together still demonstrates that footfall has plummeted.”
In recent months the high street has been rocked by a wave of administrations, with Toys R Us and Maplin among the brands to disappear, taking thousands of jobs with them. New Look, Carpetright and House of Fraser are among the big names resorting to company voluntary arrangements (CVA), a form of insolvency used to close unprofitable stores. This trend has contributed to a rise in the national town centre vacancy rate, which increased from 8.9% in January to 9.2% in April, according to the BRC-Springboard data.
On Thursday the new Mothercare chief executive, David Wood, who was parachuted into the job last month, is due to update investors on its search for new investment. In March the struggling retailer, which has an £80m hole in its pension pot, revealed it was on course to breach the terms of its bank loans and needed extra cash to finance its reinvention. The company is understood to have approached potential rescue buyers and is also considering a CVA to speed up the closure of underperforming stores.
Carpetright has already had its CVA, which will result in 92 stores closing, approved by landlords. The final hurdle for the chief executive, Wilf Walsh, to clear is raising £60m from the City to shore up Carpetright’s finances, a fundraising push that is due to begin this week.Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk
However, in a sign that investors are reluctant to pump cash into struggling retailers, Carpetright said last week that it had borrowed £15m from its biggest shareholder, Meditor European Master Fund, to tide it over until the proceeds from the cash call are banked. Despite its large shareholding, Meditor still demanded a £2.25m arrangement fee and is charging interest of 18%.
Poundworld’s owners, the American private equity firm TPG, had previously indicated plans to support the retailer through a CVA that would have enabled the closure of nearly a third of its 355 stores. But it emerged over the weekend that TPG has had a change of heart and is trying to offload the loss-making business it acquired in a £150m deal in 2015.
Poundworld, which started in 1974 as a market stall in Wakefield in West Yorkshire, has 5,500 employees. However, given the retailer’s recent poor financial performance, any new backer is likely to want to push through a painful restructuring via a CVA or even an administration. Likely bidders could include turnaround firms such as Alteri Investors or Endless, while fast-growing discounter B&M could also be interested in acquiring some of the chain’s stores.
- Retail industry
- Consumer spending
- Consumer affairs
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