Retailers in the line of fire
Saturday, 26 July 2008

Retail sales suffered their worst slump since 1986 in June, official figures revealed yesterday, piling the pressure on leading stores and chains. James Thompson reports on the 10 retailers feeling the pinch most acutely, as the consumer slowdown continues to bite

There have already been a plethora of retail administrations this year and more are set to follow. The retailers that have hit the buffers span a variety of sectors, but the furniture and value fashion sector have claimed more victims than most.
Many of those that have hit the buffers have been owned by private equity firms, which bought them in highly leveraged deals in the past five years. As retail trading has slumped, anxious banks reached to pull the plug as profits fell short and banking covenants were breached.

The retail year kicked off with a flurry, as it often does, in January, as the shoe chains Dolcis and Stead & Simpson fell into administration and the discount bookseller The Works followed on 31 January. An unspoken truth in the sector is that banks often wait until after the lucrative Christmas trading and the tills have been emptied before calling in the administrators.

In addition to footwear, 2008 has turned into a horror story for a number of clothing retailers, although some of the casualties had been on the watch list of restructuring experts for a long time. In the spring, the value clothing chains Ethel Austin and MK One collapsed. In their previous guises, both chains were unable to compete with Primark.
However, if the fashion sector has been badly buffeted by the credit crunch, the furniture sector has felt the full force of a credit crunch twister ripping through their retail park stores. The recent falls in like-for-like sales at ScS, which hit the buffers this month before being brought out of administration by a US private equity firm.

One private equity firm licking its wounds this week is Alchemy Partners, which backed the £52.4m acquisition of the flooring specialist Floors-2-Go in December 2006. Floors-2-Go became the latest retailer to fall into administration on Monday evening.

While some retailers continue to buck the downward trend, it is the restructuring specialists, such as Kroll, Hilco and Gordon Brothers which are profiting from the retail slump. They are already putting their money on retailers that will go bust this year and they are not planning any long holidays in January, February and March.
----The Independent

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