Woes of BHS and Austin Reed Deepen Britain's High Street Crisis

  • Retailers seek administration after failing to stay relevant
  • Stores struggle with rise in online sales, out-of-town malls

Britain’s high-street retailers are feeling low.

In the last week alone, two stalwarts of the country’s downtown shopping districts have moved to appoint administrators, similar to filing for Chapter 11 bankruptcy protection in the U.S.

The companies -- department store operator BHS Group Ltd. and formalwear retailer Austin Reed -- are the latest victims of a deepening crisis, as shoppers gravitate instead to out-of-town malls or online retailers.

The slump is changing the fabric of a British institution that draws masses of shoppers to town centers on weekends with a collection of brands ranging from John Lewis department stores to booksellers like Waterstones to apparel chains such as Marks & Spencer and Next. 

The decades-old concept is now being upended by changing consumer behavior and the inability of some retailers to remain relevant, a fate that contributed to BHS’s downfall. Long-time occupants of prime retail space are moving out, and in many cases they’re being replaced by discount chains and thrift stores.

“Traditional retail businesses with high-street stores have high fixed costs,” Alan Stewart, chief financial officer of Tesco Plc, said in a wide-ranging interview. “If their business starts changing and they don’t have a capital structure that’s sufficiently strong to withstand that change then they’re in a weakened position.”

Sliding Sales

Higher disposable incomes aren’t translating into increased retail spending. Retail sales fell 1.3 percent in March, according to the Office for National Statistics. The number of shoppers on British high streets declined 3.9 percent in March, according to data from researcher Springboard.

The decline in traffic is a “continuation of a longer-term trend caused by on-going structural change within the retail industry,” Helen Dickinson, chief executive of industry lobby group the British Retail Consortium, said by email. “Customers don’t differentiate between buying online, on a mobile device or in-store.”

Bricks-and-mortar shops have been undermined by Britain’s leading position in e-commerce. In the U.K., 13.4 percent of all retail sales took place online in 2015, compared with 9.2 percent in the U.S. and a global average of 7.3 percent, according to researcher Euromonitor.

BHS appointed administrators Monday, putting 11,000 jobs at risk. The move followed the sale of the company for a mere one pound last year by billionaire retail entrepreneur Philip Green. The investor group that acquired it tried unsuccessfully to raise the money needed to meet contractual payments.

Dowdy Image

Green was unable to turn around BHS, which he owned for about 15 years, despite his success with other British retailers such as apparel chain Topshop. Analysts say BHS, a nearly nine-decade old chain of 164 stores selling everything from lighting to clothing, failed to adapt its product line as well as its business model.

Austin Reed, a 116-year-old suit seller, appointed AlixPartners as its administrator Tuesday, citing “cash flow difficulties arising from challenging retail market conditions.” The move jeopardizes 1,184 jobs.

While BHS had a dowdy image, even some high-street retailers with a more contemporary profile have struggled lately.

U.K. same-store sales at Primark, a discount fashion chain owned by Associated British Foods Plc, fell about 1 percent in the most recent quarter. The decline was the first in more than a decade, according to analysts.

Next Struggles

“The U.K. has been tough,” AB Foods’ Chief Executive Officer George Weston said in an interview, citing the recent impact on sales of unseasonably cool temperatures. “When the weather improves, we hope consumers will come back.”

A competitor, Next Plc, lowered its forecast for growth in sales of goods at full price by 2 percentage points in the current financial year, a reversal from years of outperformance. It now sees revenue falling as much as 1 percent or gaining 4 percent at best, compared with a Jan. 5 forecast for growth of 1 percent to 6 percent.

Next Chief Executive Officer Simon Wolfson likened the year ahead to “walking up the down escalator.” Wolfson cited the likelihood that slowing growth in disposable incomes would hamper spending.

Though BHS stores remain open for now, if the chain were to shut down it would be the biggest retail failure in Britain since the demise of Woolworths Group Plc in 2008. Since then, the country has lost several other longtime high-street chains, including HMV music stores, Comet electronics shops and Jessops photo centers.

More Casualties?

“Unless retailers adapt their business to meet the needs of today’s consumer, we will see more high-profile casualties, as the combination of fragile economic conditions and the disruptive force of online retailing continues to bite,” Jason Shorrock, vice president of EMEA retail strategy at consultancy JDA, said by email.

Neil Wrigley, professor of human geography at the University of Southampton, said the high street will survive despite changing consumer behavior and missteps by individual retailers. He said he saw signs of life in the artisanal bakers and butchers that are returning to some of these shopping districts in affluent regions in and around London.

“The high street is a complex urban ecosystem that has shown tremendous capacity to adapt, and it will continue to do so,” he said.

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