Will the gods smile on retail in 2019, or turn their faces from it?
January, named after the Roman god Janus – usually shown with two faces – one looking to the future and one to the past, is traditionally a time for reflection and optimism for what the New Year may bring.
The godly functions attributed to Janus are primarily concerned with transitions, endings and new beginnings, so it is apt in this blog that we reflect on the events of 2018 in the world of retail and leisure and look forward to what 2019 may bring.
So reflecting on 2018, what were the key features?
- The rising statistics: according to research by Deloitte retail CVAs rose by 53% (a marked increase compared to the previous year) as more retailers and leisure operators opted for CVAs to restructure and rescue their businesses. Many well-known high street operators used this insolvency process including New Look, Mothercare and Carpetright compared with only two in 2017. There were many more retail administrations up 6 % to 125 including more well known traders such as Toys ‘R’ Us, Coast and HMV. It affected all sectors including discount retailers such as Poundworld.
- Challenging trading conditions: factors such as increasing staff and property costs, reduced consumer confidence and other economic factors
- Retailers with too many stores/units: no retail environment seemed immune from this particular challenge department stores, out of town retailers and high streets were all affected. Several key retailers looked to engage in talks with landlords to rationalise their estate portfolio or make provision in their lease that they would get some adjustment to their terms in the event of CVA terms agreed elsewhere.
While it is always hard to predict the future, looking forward to the year ahead we can likely expect the following:
- A number of major retailer chains to either enter administration or seek approval for CVAs. The most recent reported instance being Paperchase, who have called in advisors to explore a potential CVA. As with the previous year, the majority of failed CVAs will likely end up in administration.
- Increased informal restructuring with retailers and leisure operators looking to close loss making stores or seeking rent reductions, such as Smiggle the stationery retailer which is reported by Property Week to be in talks with landlords. Total retail store closures are reported to rise by approximately 20% to 22,100.
- There are concerns for jobs in the sector with retail job losses also expected to rise nearly 20 per cent.
*Online retail will likely continue to be one of the key challenges to traditional high streets, although exclusively online retailers were not immune to trading difficulties in the run up to the Christmas trading period.
According to the Centre for Retail Research the difficulties facing the high street are set to intensify during 2019 due to the “high costs of running retail stores and continuing weak demand”. This will have a knock on effect for commercial property owners or funds with a retail focus as reflected in the statistics contained in Knight Frank’s 2019 Retail Property Market Outlook.
The Knight Frank report suggests various areas need review including, as we have commented before, that the CVA process is due an overhaul to something more “equitable and transparent”. We predict that whilst occupiers carry out reviews of their existing property estates they will no doubt conclude that they require more flexibility in leases including the length, number of break clauses as well as looking like Janus into the future to ensure lease terms provide for future adaptability to cope with an evolving, but one hopes resilient, retail landscape.
So expect 2019 to be a busy year on all fronts, not just in relation to CVAs but in the restructuring market as well.
28th October 2020
In this webinar we hear from Kyle Monk, Director of Insight at the British Retail Consortium.
19th October 2020
We have seen a sharp increase in commercial contract cases involving force majeure and frustration.
9th October 2020
This guidance note focuses on the new regulations for the hospitality sector in Scotland.