Toys R Us closing down

It’s rather difficult to follow the news nowadays without noticing another retailer facing challenging trading conditions on the UK high street.

Of course, it was Toys R Us which was the most recent high-profile retailer to go under the spotlight – a company beset by problems which had been known about for some time now. Although it appeared that the UK chain had received a stay of execution in December 2017 following an agreement by landlords to take back the keys to a quarter of its shops and accept less rent for those that stayed open, the writing was already on the wall once weak trading had continued into the new year.

There is no doubt that online competition had also played a pivotal role in the downfall of Toys R Us, with the company finding it difficult to adapt to a changing retail environment. The firm was also struggling with a large amount of unsustainable debt, including a colossal £15 million VAT bill. Many experts had predicted an administration was long on the cards even before it eventually came in to fruition.

Crucially, it was the lack of investment which drove the final nail in to the coffin, ‘suffocating’ the company to such an extent that it had no option but to be placed in to administration. Coincidently, the company’s US parent was in Chapter 11 having sought protection in September 2017. However, it has recently been announced that the recovery plan is no longer viable resulting in the closure of all Toys R Us stores, with thousands of employees being made redundant.

Unfortunately, 2018 has seen several UK stores face similar difficulties. The collapse of Maplin’s was well documented earlier in the year and the bed, mattress and furniture company Warren Evans had also recently fallen in to administration. New Look and Carpetright are also in the process of restructuring, closing dozens of stores. Most recently, Homebase has also been in the spotlight, suggesting that it is considering closing large numbers of its stores, whilst House of Fraser is seeking to reduce its rental commitments.

Although this is a major blow to the economy and to the high street, it was only in November 2017 that I asked the question ‘Is Your Business Showing Signs of Distress’? I had cited the main contributor being the fall in sales volumes for several companies, which had resulted in them reaching the limit of their financial facilities. Other key contributing factors mentioned were the rise of cost of borrowing, the fall in consumer confidence and failure of a major supplier. Throw in the rise of rent, rates, the national minimum wage and imports and the way UK households spent their time and money, you are essentially ‘painting a picture’ of why some retailers could face incredibly challenging times ahead.

The warning signs have been there for some time now and even Debenhams stated last year that tough times were ahead on the UK high street, citing the market had become more unpredictable as consumers ‘tighten their belt’.

Julie Swan, Insolvency Practitioner:

“As we have seen recently with the high-profile collapse of Toys R Us and Maplin’s, the high street is facing difficult volatile trading conditions. The most common reasons appear to be a decrease in sales volume, with fewer companies reporting signs of growth and the surge in changing habits of consumers who are spending more on leisure and travel.

Those businesses which are overburdened by debt have clearly suffered most, and as blunt as it may sound, it is perhaps better to allow them to continue to fail, given that insolvency is inevitable. Other companies such as Debenhams for example would need a radical overhaul to become more relevant to consumers in order to deliver the level of like-for-like sales growth to cover the group’s rising costs base”

Yet, despite these fears, the sooner you are able to identify signs of distress for your business, the more options you have to sort this out. It is crucial to seek regulated advice within the insolvency and restructuring profession, and it is here where SKSi can assist company directors to make the best choices for their companies. We cannot stress the importance of reaching out for expert advice from regulated professionals, as more can be done to provide the best possible outcome for a firm showing signs of distress.

For help and advice on administrations specifically, and insolvency procedures in general, please contact us