The collapse of the high-street: What does it mean for suppliers?
The British high street is in crisis. Growing Business looks at the challenges and the opportunities this creates for your business
In a matter of months the face of the British high street has completely changed.
The damage spans the breadth of the retail market, from British Bookshops & Stationers to Oddbins wine merchants, Focus DIY and Homeform to Henley’s Clothing and Officers Club. Then, in June, Haldanes Supermarket and TJ Hughes announced they were also going into administration; followed, of course, by Habitat and Jane Norman. The jury’s out on how many more brands will be bust by the year’s end.
Growing Business estimates these closures will directly trigger at least 13,000 job losses; however the true cost could be far greater as the implications for hundreds of small businesses come to light.
The supplier effect
Small suppliers are already challenged, facing an increasingly uncertain, fast-changing retail environment. They are under pressure to provide products faster and cheaper, often liaising with manufacturers in different countries and time zones to do so. Lest we mention the effect of the wider economic climate; rising costs of fuel, tax and premises rent; and ever-tougher competition for contracts, as more small businesses fight to survive.
Peter Whalley, a corporate restructuring expert at Thames Valley accountants James Cowper, encapsulates the scale of the problem: “We may technically be out of the recession, but consumer confidence is fragile and people are cutting back on spending, which means that for those businesses in the retail supply chain there could be a worrying few months ahead.”
Kent-based Form Graphics is one such firm. Having provided all Jane Norman’s in-store graphics (such as sale signs and window displays) since 2007, it last week lost its biggest client – having been kept in the dark until the last minute. “We checked the day before they went into administration with the Dunn and Bradstreet credit agency and they were still saying they are worth millions,” says owner Peter Stead. (Growing Business‘ research has found that shareholder funds were almost £60m, and pre-tax profit £13.1m, in the year to March 2010.) Fortunately the company is in a strong position to handle this blow. “Funnily enough, we’re having an amazing year and won some big new clients,” he says.
Many other small suppliers have not been so lucky. “Jane Norman is one of our main customers – our business may even be jeopardised by their problems,” one supplier, who asked not to be named, told Growing Business. He revealed that around 60% of his business is at risk as a result of Jane Norman’s demise, whilst other sources have told Growing Business about manufacturers who are owed in excess of £70,000 by the fashion retailer.
Habitat looks set to leave a similar legacy, with many of its wide range of products sourced from specialist national and international suppliers. None of the suppliers we contacted were willing to comment, however a spokesperson from Home Retail Group, which recently acquired the ailing brand, told Growing Business: “Continuity of supply and the long term health of the Habitat brand are important to us, which is why the business is working with the administrators and Habitat suppliers to minimise the impact as much as possible.”
The ripple effect
The worry now is that the worst is yet to come. At least another five well-known brands have announced significant store closures and job cuts in the last six months and there are few signs of the high street undergoing an imminent recovery.
“If just one big company goes bust, the ripple effect can hit hundreds or even thousands of smaller businesses down the supply chain,” warns Forum of Private Business spokesman Chris Gorman.
Furthermore, this could trickle down from small suppliers to consequence their manufacturers as well. Tony Tyler, managing director of specialist flooring supplier THG International, told Growing Business that the demise of Carpet Right could prove the final blow for an already ailing industry of British flooring manufacturers. In recent months, vinyl tile manufacturer Amtico has outsourced its production to China to maintain competitive prices, potentially putting its substantial Coventry factory at risk. Even quintessentially British Brinton Carpets, which was founded in 1783 and has royal appointment, may be forced to follow suit, one source speculated. A subsequent decline in British exports could in turn affect national GDP.
New business opportunities
However for some small businesses and entrepreneurs, there may be a silver lining to the current economic cloud. “Small independents will come out of it very well,” Tyler says. Noting the mood of consumers who are increasingly favouring a custom, specialist product, he adds: “There is a lack of technical knowledge and experience in the industry now. The more you can offer the more chance you’ve got.”
Several companies are already filling the gaps left by the late retail giants. In fact there is a case to say that these new brands played their part in their demise, by offering fresher, more market-savvy products and service. Established in 2003, furniture company Dwell is one such brand, described by its buying and merchandise director, Jean Brixey, as “young,” “dynamic” and “willing to change”.
“We [the directorial team] are our customer, so we understand that you want product and service,” she says. “We’ve just brought in a dedicated role – ‘head of customer experience’ – who makes sure that the experience is good as possible. We’re constantly listening to what our customers are saying.”
She adds: “Habitat potentially put their brand before their customers. Habitat didn’t develop with their customers, but hopefully it creates a new opening in the market.”
Similarly, ASOS.com has adopted a large proportion of Jane Norman’s (and indeed many other fashion retailers’) customers in recent years, seducing shoppers – particularly in the teen and twenty-something market – with its huge range of cheap to designer fashion at the touch of a button. Although no retailer can deny that consumer spending is constrained at present, the online marketplace is certainly more resilient to economic changes, such as increases in high street property rents, making it a more stable trading area for suppliers.
Michael Ord, founder of online marketplace Frooly, says: “Over the past couple of years we’ve seen successful small and luxury businesses move away from the high street altogether, instead rushing towards an online selling strategy.” However, to optimise the online market some small suppliers need to be prepared to rethink their own operations, with many, Ord states, currently unwilling to sell to online-only retailers. As a result some retailers are maintaining shop premises just to store stock, whilst most of their sales are made online. “Shoppers are simply staying at home, ordering more items from the Internet,” says Phil Duffy, a retail expert at MCR corporate restructurers.
Business lessons learned
Even if your business hasn’t yet been affected, it is important to ensure resilience should the worst case occur, especially in today’s climate. The British Retail Consortium has a list of recommendations for the long term health of the high street. Key for suppliers is recommendation eight, which states: “Partnership and collaborative working lie at the heart of all successful retail-led regeneration.”
Similarly, Dwell’s Jean Brixey says: “The key thing is always to communicate with the [client] company on a really regular basis.” This will also allow you to look out for certain warning signs. Accountancy firm James Cowper has compiled a list of the top ten indications that things might be going badly, which includes requests for extended terms, repeated excuses for late payments, disputes over deliveries, missing paperwork, low morale among junior employees and notably, fast turnover of senior directors and chief executives. “By being quick to spot any warning, businesses can act fast to protect themselves,” Peter Whalley adds.
However, as a supplier who has recently lost their biggest customer, Peter Stead perhaps holds the most crucial advice. “You should never become too dependent on one or two clients; always have numerous customers,” he warns. “You’ve got to make sure that no one customer takes over your business.”
If you are a supplier who has been affected, click through to the next page for further advice
What to do if your client goes bust
Although your first impulse may be to get straight on the phone to the client, it is worth taking some time to consider your position. Find out what your rights are, evaluate the potential damage and if you are still in possession of stock, research new clients who you might be able to sell it on to.
How do I get answers?
Once you have made this initial assessment, work out the questions you still need answers to and put these in writing. It may well be worth sending these by snail mail, and follow this up by telephone and e-mail. Also, call in advance and ask for the name of the person you should direct your enquiry to.
Which bodies are set up to help?
The Federation of Small Businesses (FSB) and the Forum of Private Business (FPB) each run services which can support your business. The FSB specialises in lobbying the government to make your voice heard, as well as offering 24/7 legal advice and – should you need to take your client to court – legal documents, which you can amend for your situation. The FPB runs an excellent helpline, putting you in touch with experts who can offer immediate solutions and reassurance. You do need to be a member to benefit from each company’s services.
How do I deal with the client?
It is important to bear in mind that at the client’s end, business operations are likely to be up in the air.
Wait a few days before telephoning your point of contact and use this time to consider your position. If, for example, you have been able to sell outstanding stock to another customer, your demands will be minimised. Carefully calculate exactly what you are owed by the client and communicate this calmly and professionally, backed up by formal documents.
What rights do I have?
Although technically the client has a legal responsibility to credit your business for any outstanding goods or services, if the client has been put into a “pre-pack administration” by its administrators, it may be able to forgo its financial obligations. In this case, contact your solicitor immediately. Furthermore, if you have contact with any of the client’s other suppliers, it may be a good idea to speak to them to ensure they have received the same treatment as you. These inconsistencies could carry weight if you are forced to launch a legal case.