Garry Wilson put his heart — and £9m — into saving TJ Hughes, the discount department store chain. His company, Endless, a specialist in saving ailing companies, bought the Liverpool-based retailer in March with big hopes of returning it to its former glory.
On Monday, those hopes came crashing down. Bob Lister, the chief executive of TJ Hughes, called to say there was serious trouble. They hadn’t paid a small bill — a few thousand pounds — to Brilliant Media, a media buying company. Brilliant had filed a winding-up order at Leeds district court.
If this became public, the consequences would be dire. The company’s landlords, suppliers and credit insurers — whose confidence was already shot — would panic. Wilson was left with a terrible decision: sit it out and wait for the inevitable run on the company or pull the plug.
He decided to cut his losses and brought in the administrators. This weekend, 57 stores and 4,000 staff face a bleak future. “I could have invested another £40m, but there was no guarantee that it would have been enough to turn it round,” he said.
TJ Hughes is not alone. Retailers, big and small, are under assault from a rapid shift to internet shopping, a slump in consumer confidence — and from some chains having taken on too much debt and over-expanded during the boom.
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“There are too many people selling the same thing at a time when the cost of living has shot up,” said one senior retailer.
It’s little wonder that Wilson described the high street as a “nightmare”. The frightening thing about TJ Hughes’s demise — and the thing that will send shudders through the rest of the industry — is that a small bill could trigger the collapse of such a large group.
The internet has become the default way to shop for millions — whether they are buying groceries, lingerie or sofas Jane Norman, the youth fashion chain, also went under on Monday night. The damage: 200 shops and 1,600 jobs.
On Tuesday, Thorntons, the chocolate maker, revealed plans to shut up to 120 shops over the next three years.
Carpetright slipped into its full-year results that it will close at least 50 stores as it posted a 40% fall in profits and axed the final dividend.
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On Thursday, HMV finally gave up on trying to compete with Amazon and iTunes when it said it would focus on live music and gadgets. HMV’s pre-tax profits fell to £200,000 from £68.9m for the year as sales sank by 11%.
It was a depressing but seminal week for the high street. For decades, it has been a cash cow for investors and government with upward-only rents for landlords and fat rates and tax receipts for councils and the Treasury. Those days are over.
The internet has become the default way to shop for millions — whether they are buying groceries, lingerie or sofas. This alone would be enough to disrupt the status quo. Coupled with a flaccid economy and an unprecedented crisis in consumer confidence, it is wreaking havoc.
The government has shown no urgency in addressing the problem. The recent appointment of Mary Portas, the television presenter, to save the high street has been greeted with derision in the industry, while plans to give rates holidays to smaller retailers show no signs of becoming a reality.
Some observers question whether the government should bailout retailers who got greedy and over-expanded during the boom years. They also worry that a rates holiday or cut in Vat would just delay the inevitable. Perhaps it’s time we acknowledged that the high street, as we know it, will never be the same again.
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For the general shopper, the retail purge is probably not such a bad thing. Few will miss the pokey Thorntons on their high streets and many can’t remember the last time they bought a CD. People are probably already enjoying the early summer bargains after Marks & Spencer brought forward its sale by two weeks and George at Asda slashed the prices on 1,000 styles last week to get punters into stores.
But behind the sale signs, the repercussions will be dire. Thousands of jobs are at risk. More than 6,000 could go as a result of the troubles at Jane Norman, TJ Hughes and Thorntons. Another 3,700 were put in the line of fire when Habitat and Homeform, the owner of Moben Kitchens and Dolphin Bathrooms, went under two weeks ago.
Landlords and suppliers are paranoid that there are more failures to come. Fearful for their balance sheets, they are refusing credit to anyone other than the big supermarkets and, as government cuts deepen and job losses grow, the situation will only get worse.
“This is retail’s credit crunch,” said Wilson from Endless, “there is no confidence in the sector.” Richard Hyman, a retail consultant at Deloitte, added: “One of the few certainties is that things will get worse. The cuts are only starting to come through — next year we’ll have a whole year of it.”
Fearful of losing their jobs, people will stop spending. Some have already stopped. “The TJ Hughes customer was the working class man and woman — people who want a bargain — but they’re just not spending,” said Wilson, “we’re moving from a want culture to a need culture.”
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Increasingly, the supermarkets are able to supply people with everything they need. Sainsbury’s has ear-marked 40% of its new space for non-food items, Tesco’s will be 33%. This means that shoppers can pick up a cheap kettle, a T-shirt and a book with their groceries. Not only is this more convenient than schlepping to a high street, but it cuts down on fuel costs.
This will create what analysts are calling the “Tesco and Chanel” model. Robin Knight, partner at Zolfo Cooper, the restructuring firm, said: “At one end of tomorrow’s high street are the supermarkets with groceries at their heart, but increasingly dominating clothing, books, electrical goods and home furnishings.
“Complementing these retail giants will be the high value, high margin specialists trading on a combination of brand, service and retail experience. Everything else in the middle is effectively fighting for survival.”
Some have given up the fight. Jo Butler, a boutique owner based in Romford, Essex, has had enough. She opened the first Butlers 24 years ago and built it up to four shops across the county. Now there is only one — but not for much longer.
“This is the last one left to close down. I want out. Our rates are up and our rent is up and for every £10 coming in, I’m taking home about 10p,” she said. “My shop girls have no idea what they’ll do when we shut down, they’ll have to make alternative arrangements, but nothing has come up for them yet.”
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It’s not just the independents that are vulnerable. All the big chains, including Thorntons, Comet and Topshop-owner Arcadia, are examining their store portfolios. Not only will this lead to more job losses, but it will empty hundreds of high streets and shopping centres.
In northern towns, such as Rotherham, almost one in five shops already sit empty. Landlords fear things can go only in one direction. “There’s a growing camp, like us, who believe those vacancy rates are a permanent structural thing and are more likely to rise than fall,” said Mike Brown, co-founder of Max Property Group.
“Big retailers can now cover the UK from 50 centres — they don’t say, ‘I’m in Manchester and Leeds, now I need a unit in Hartlepool.’ That’s a fundamental change.”
This has created a two-tier landscape split into prime and sub-prime with retailers desperate to get out of the second-tier streets.
Some will follow JJB, Blacks and Barratts Shoes with company voluntary arrangements (CVAs) that let them wriggle out of onerous contracts before they expire.
For others, retrenchment will not be enough and they will go the way of Jane Norman and TJ Hughes. The next rent quarter day could be devastating, according to Wilson.
“I dread to think what’s going to happen at the September rent day. Companies will not be able to afford to stock up for Christmas because the suppliers won’t give credit and the landlords will demand rents upfront. More high street names will go.”
Another retail boss, who preferred not to be named, said: “HMV faces a battle to survive, but I can’t see where it will go. Clinton and Thorntons are in the same position.”
Will Wright, restructuring director at KPMG, added: “For the retail industry, it is now a question of survival of the fittest. Companies with healthy cashflow, low debt levels and customer demand will survive.
“Conversely, retailers facing a cash squeeze, large debt burdens, faltering sales and — particularly those with expensive and large store portfolios — will face a very tough time." Even the big discounters, such as Primark and Peacocks, will find it tougher as they get squeezed by higher raw material and wages costs and falling demand.
The outlook couldn’t be gloomier for the high street. “But don’t worry,” said one retailer grimly, “Mary Portas is going to sort it out.”
Rivals without shopfronts
While the high street staggers, nimble online retailers are charging ahead, writes Kate Walsh. Alexandalexa.com, which sells designer childrenswear, is one. It operates from an office near London Bridge, and does not need legions of salespeople, so avoids high rent and rates bills.
Co-founder Alex Theophanous, a former Coca-Cola executive, said: “The whole retail experience is changing and it’s driven by online. Look at us, look at Net-a-Porter — these businesses were set up by people with no experience in traditional retail.” Of course, nearly all the high street players have strong websites, but in many cases these are cannibalising instore sales.
“We’re doing a booming trade on the website,” said one fashion retailer. “It’s easier for customers.” Often, though, these thriving online operations are being dragged down by the cost of running hundreds of underperforming stores.
There were no such overheads for web entrepreneurs such as Theophanous and Natalie Massenet, who founded the online boutique Net-a-Porter, and investors are quickly trying to exploit the growth in the market. Tiger Global, one of the original backers of Linkedin, the professionals network, bought a majority stake in alexandalexa.com that valued the company at £16m. Notonthehighstreet.com, the gifts site, received £7.5m from Index, a backer of Skype.
These figures are dwarfed by the sale price for Net-a-Porter last year. Massenet made £50m from the £350m deal with Richemont, but like her online peers she started small. “We launched on a shoestring but with big goals,” she said. “We never let the customer see that it wasn’t a global, luxury shopping organisation — in the background we were running around.”
Additional reporting: Kiki Loizou and Ben Marlow