What Went Wrong at Wilko?
More than 90 years after beginning as a single hardware shop in Leicester, Wilko went into administration on 10th August with 400 stores and 12,500 staff on the payroll.
Wilko’s collapse comes at a time when the UK high street is under threat amid inflation, rising mortgage costs, constrained budgets and dropping footfall with consumers instead opting to go to larger out-of-town shopping centres.
What Went Wrong at Wilko?
Wilko has been a much-loved fixture on the UK high street for decades and in 2018, its turnover peaked at more than £1.6 billion. However, in the years since, its profitability has steadily declined until it succumbed to administration at the beginning of August.
PwC, who have been appointed to run the administration, said challenges in the retail sector, compounded by Covid-19, higher energy costs and tighter consumer budgets contributed to “cashflow pressure and a deterioration in trading”.
Out-of-town competitors like B&M and Home Bargains have also been gaining market share over the last 10 years. B&M is now a £4.5 billion + turnover business with over 1,000 stores and Home Bargains turns over £3.4 billion + with nearly 600 stores. Consumers have lots of choice at the value end of the retail market and out-of-town shops have been winning out over high street retailers.
With declining profitability, last year Wilko borrowed £40 million from restructuring specialist Hilco Capital, cut 1,600 jobs, closed 15 stores, made changes to its leadership team and sold a distribution centre in an effort to ease cash flow pressures. However, it still struggled to pay its bills and suppliers paused or reduced deliveries leaving gaps on shelves and at least one credit insurer withdrew trade cover. With unsustainable debts and failed rescue talks, it had no choice but to enter administration.
Throughout August, retail analysts have been speculating about what led to the collapse with some saying that Wilko’s stores were too big, with too much excess space and too wide a variety of products not practical for people to buy in bulk on the high street.
For weeks, administrators have been holding talks with potential interested buyers and while there was initial hope that a buyer might buy the business as a whole, this has not happened. This week, B&M has struck a deal to buy 51 of Wilko’s stores and some others will close for good with further job losses.
Zelf Hussain, a joint administrator and PwC partner said: “Many high street retailers are facing a number of well-documented challenges and Wilko has been significantly impacted by the headwinds facing the industry including inflationary pressure and rising interest rates.”
How Many More Will Fall?
Wilko’s problems, like many other struggling retailers have been masked in recent years with government Covid support that provided business rates relief, tax holidays and restrictions on landlords’ ability to call in rents. They have been managing to survive on cheap credit, a luxury that has now come to an end.
Begbies Traynor has predicted that all the nation’s debt-laden ‘zombie’ companies will be wiped out by the end of next year. With rising interest rates, many companies have reached a tipping point where they cannot come up with enough cash to service their debt. Further, investors and banks have less interest in lending to these companies or refinancing their debt because higher interest rates mean they have better, safer options.
Insolvency, however, isn’t the only option available to zombie companies. With the help of turnaround professionals, there may be other possibilities to explore, even in the current climate.
Commenting on Wilko’s predicament, TMA UK Board Director, and Managing Director of J9 Advisory, Johnny Abraham has said: “As a well-known British retailer, Wilko’s demise into Administration is attracting a lot of media attention.
With views being cast over the Board of Directors there have also been allegations about the transparency of the post administration sales process. In addition, this weekend The Times described the funders that injected the cash that enabled additional time to seek to rescue the business as “a vulture fund that has feasted on the carcasses of collapsed chains” whilst going on to question the roles various parties have played in the process.
It is easy for journalists who have no experience in the sector to create sensationalised and provocative articles that exclude important context that comes with dealing with distressed situations, however having worked with many sizable retailers in my career, I can say that these are not simple cases, with many stakeholders to manage in order to achieve the best result for creditors.
Advisors can only work with what they have at the point of being engaged, and in a lot of cases this is at a time of growing creditor and time pressure, with limited funding options available and a lot of fires to put out in order to stabilise the business.
When engaged early enough, turnaround professionals can quickly assist boards in reviewing their business options and then in creating and implementing a turnaround plan to provide the best chance of enhancing value for all stakeholders with a view to returning to profitability and a stronger future. Sometimes, depending on the position of the business, insolvency is sadly unavoidable however, again, the key is to engage quickly with qualified and experienced professionals in order to maximise value for creditors.”
TMA UK is part of TMA, a global organisation that represents the interests of turnaround professionals as its members who have the skills needed to assist companies in challenging times. If you need assistance, please contact our helpline on 0844 804 0116
Article by TMA UK (produced by Kickstart PR & Marketing)