Retail Sector on the Brink?

Wed 08 Mar 2017

With the recent news that clothing retailers are seeing the drop in footfall reach a five year low and the weak pound increasing the cost of imports, the likelihood is that the retail sector could be in for more turbulent times in the not so distant future, especially now that the Brexit decision has been clarified.

Now it is more important than ever to have a more structured back up plan to ensure survival, as life will definitely be tougher over the next few months, especially with the increase in the National Living Wage next month and an increase in the associated costs (such as pension contributions and taxes), together with business rates increases.

So what can retailers do? An overall review of your business is always a good idea, perhaps carried out by someone independent who has a fresh pair of eyes. If you are importing goods, thanks to the weak exchange rate now would be a good time to review the items that you are selling to determine whether you need to make any strategic changes. If cash flow has started to suffer, have a look at your costs to see whether any reductions can be made. You may need to consider investing further cash into the business.

For those businesses which are renting their retail space, quarter days can cause cash pressure points. If your VAT quarter payment falls due at the same time as the rent, then the cash will be squeezed further still. Using a cash flow forecast will help you identify the likely pinch points and will help you budget better if cash is likely to be tight. There are some great online tools to help you put together a basic cash flow forecast, or your accountants will usually be able to help.

If you think that your business is likely to be adversely affected by the Brexit decision or rising costs, get in touch with the Mazars Restructuring Team so that we can help you navigate through the stormy waters of the next few months; we would be happy to help you put together a cash flow forecast to plan your way through the eddies.

Retail Case Study

We were engaged by a director and 50% shareholder of a family-run, independent retailer located in an affluent suburb of Bristol, which had traded largely successfully since 1999. Mazars, through liaison with the director and his advisors, helped devise a strategy to settle a family dispute relating to the business. Following a “falling out”, one of the Company’s directors left and it fell to her 80-year-old father and fellow director to run the business. There was approximately six years left on the Company’s lease to the shop, for which he was solely responsible, and the father was struggling at his age to run the business. In addition, the daughter was refusing to agree to any sale of the business.

Mazars, having obtained significant creditor support, was able to secure sufficient creditor support to enable Tim Ball of Mazars LLP’s Bristol office to be appointed by the Secretary of State as Liquidator in December 2015, in direct response to a winding-up petition initiated by the father. The business had initially ceased to trade on the instruction of the Official Receiver, but due to the nature of the business, the stock held, and the time of year Mazars decided to reopen the business in order to capitalise on the busy Christmas trade and, therefore, achieve a greater return for the company’s creditors, as well as help with a possible going concern sale. In the short trading period up until Christmas, the business was able to generate a significant profit which would otherwise not have been available for creditors.

In addition, immediately following appointment Mazars utilized its extensive networks in order to market the business and to locate a suitable buyer who was prepared to offer a sensible price, acquire the remaining stock and take on the lease that the director was so concerned about. Total realisations in the liquidation for this relatively small family-run retailer have amounted to approximately £130,000.

Our work has resulted in not only achieving a likely return for the Company’s unsecured creditors, but it also assisted the father in freeing himself from a business that he could no longer run and an onerous lease for which he was personally liable. In addition, the business has been able to survive and a significant proportion of the Company’s former staff have retained their jobs.