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Demise of retail giants creates deep ripples across the sector

19 September 2011

The decline in consumer spending is causing a domino effect to retail suppliers. 

The closure of high-profile retailers such as Woolworths and Jane Norman have generated many media headlines, as high street giants struggle in the face of declining discretionary consumer spending. 

In the UK, consumer confidence has fallen for three consecutive months to the same level as during the 2008/2009 recession and the economic turmoil in the early 1990s, according to market researcher GfK NOP’s UK Consumer Confidence Survey. This is reflected by a 1% decline in shopper numbers between May and July compared with the same period in 2010, as highlighted by the Footfall and Vacancies Monitor conducted by the British Retail Consortium and researcher Springboard-ATCM.  

Despite most attention focused on well-known retail brands, the impact of these companies entering administration or closing stores reaches beyond the shopping malls where they are based. From furniture suppliers to food producers, a consistent decline in revenue from retail clients – particularly for specialist businesses that may have a small customer base – can create liquidity issues for the entire supply chain. 

One such example is Proteam UK, a provider of leisure products to major retailers such as DIY stores and supermarkets. Some 35% of its sales were generated from one customer, Focus DIY, which entered administration in May 2011. The resulting loss in sales created significant cashflow problems for the supplier, leading it to appoint FRP Advisory as its administrators. While it traded as a going concern, we secured a sale of the company to Paroh Limited in July. The deal safeguarded the future of Proteam UK and 37 jobs. 

Proteam UK is one of many retail suppliers directly affected by reduced consumer spending. But by seeking expert advice straight away, the company was able to trade for a month, giving us enough time to locate a buyer. 

It is important to remember that calling in a recovery specialist does not automatically mean the business will close – there are many other options that they will look into. Freeing up capital locked into assets, for example, may provide more liquidity, or restructuring the business could significantly reduce costs. Where suppliers still have a strong pipeline of customer orders, they may require additional funding from banks or alternative finance providers. It could be that a merger or sale of the company is the best opportunity for survival. 

Crucially, retail suppliers must address any liquidity issues openly and quickly, to avoid the fate of some of their customers. 

If you are concerned about your retail organisation or a client in this sector, please contact David Thornhill on 0161 833 3344, or email david.thornhill@frpadvisory.com.