Two of the UK’s best-known retailers collapsed into administration on Wednesday, putting well over 5,000 jobs at risk and underscoring the pressures stemming from inflation, slumping consumer confidence and the surging popularity of internet shopping.
Toys R Us, which had reportedly been wrangling with creditors for weeks, announced that it had appointed Moorfields to handle its wind-down, casting doubt over the future of 3,200 employees’ work.
Electronics retailer Maplin, meanwhile, said that its almost 2,500 workers’ jobs were at risk after it appointed PwC to handle its administration. Maplin has approximately 200 stores across the UK and Ireland.
Both companies said that stores would remain open for the time being. Toys R Us said that stock would be subject to clearance and special promotions and it encouraged customers to redeem their gift cards and vouchers as soon as possible.
Moorfields said that it was making “every effort to secure a buyer” for the 1985-founded toy company which operates over 100 stores nationwide, making it one of the country’s largest.
As an administrator for Maplin, Zelf Hussain, a partner at PwC, said that his initial focus would also be on engaging with parties who may be interested in buying all or part of the company.
“Staff have been paid their February wages and will continue to be paid for future work while the company is in administration,” he said.
Chief executive Graham Harris said that the business had worked hard over recent months to “mitigate a combination of impacts from sterling devaluation post-Brexit, a weak consumer environment and the withdrawal of credit insurance”.
“This necessitated an intensive search for new capital that in current market conditions has proved impossible to raise,” he said.
Retailers specialising in all sectors have been battling tough market conditions for years. Consumers have changed their shopping habits, increasingly spending money online with the likes of Amazon, at the expense of trips to bricks-and-mortar outlets.
Rising inflation and falling real wages, coupled with an increase in the national living wage have also battered some of the best known names on the high street.
Separately on Wednesday, the Press Association reported that Italian restaurant chain Prezzo could close around 100 restaurants, putting hundreds of jobs at risk.
In September last year, Toys R Us – which operates in over 300 countries – filed for bankruptcy protection in the US. Experts at the time described it as one of the largest ever Chapter 11 filings by a speciality retailer.
In the UK, many of the its small stores had proved resilient and the company’s online performance had been robust too. But the bigger, warehouse-style outlets, opened in the 1980s and 1990s, had become increasingly expensive to run, placing a burden on the balance sheet.
Julie Palmer, regional managing partner at consultancy Begbies Traynor, said on Wednesday that while Toys R Us’ administration was eventually prompted by a £15m VAT bill due this week, that was nothing more than “the straw that broke the camel’s back in a saga that has played out over recent weeks”.
She said that despite efforts to avoid going bust, Toys R Us had “fallen foul of a perfect storm hitting bricks and mortar retailers across the board”.
In addition to the rising costs associated with an increase in the national living wage, she said that the apprenticeship levy and inflation had also eaten into profits, especially coupled with pressure on consumer spending.
“It is clear that only the strongest retail offers will survive what is one of the toughest trading environments the retail sector has seen for some time,” Ms Palmer said.
Neil Wilson, a senior market analyst at ETX Capital, said that both in the case of Toys R Us and in the case of Maplin, the “Amazon effect is all too clear to see” but he also said that that retailers are able to prosper if they have the resources to adapt.
“Ultimately this is a necessary shakeout of some pretty outdated retailers which, though terrible for those affected by job losses, is likely to mean a leaner, fitter retail market and a more productive use of capital,” Mr Wilson said. “The question is whether there are more out there that could fall by the wayside.”