Retailers in the line of fire

Retail sales suffered their worst slump since 1986 in June, official figures revealed yesterday, piling the pressure on leading stores and chains. James Thompson reports on the 10 retailers feeling the pinch most acutely, as the consumer slowdown continues to bite

There have already been a plethora of retail administrations this year and more are set to follow. The retailers that have hit the buffers span a variety of sectors, but the furniture and value fashion sector have claimed more victims than most.

Many of those that have hit the buffers have been owned by private equity firms, which bought them in highly leveraged deals in the past five years. As retail trading has slumped, anxious banks reached to pull the plug as profits fell short and banking covenants were breached.

The retail year kicked off with a flurry, as it often does, in January, as the shoe chains Dolcis and Stead & Simpson fell into administration and the discount bookseller The Works followed on 31 January. An unspoken truth in the sector is that banks often wait until after the lucrative Christmas trading and the tills have been emptied before calling in the administrators.

In addition to footwear, 2008 has turned into a horror story for a number of clothing retailers, although some of the casualties had been on the watch list of restructuring experts for a long time. In the spring, the value clothing chains Ethel Austin and MK One collapsed. In their previous guises, both chains were unable to compete with Primark.

However, if the fashion sector has been badly buffeted by the credit crunch, the furniture sector has felt the full force of a credit crunch twister ripping through their retail park stores. The recent falls in like-for-like sales at ScS, which hit the buffers this month before being brought out of administration by a US private equity firm. One private equity firm licking its wounds this week is Alchemy Partners, which backed the £52.4m acquisition of the flooring specialist Floors-2-Go in December 2006. Floors-2-Go became the latest retailer to fall into administration on Monday evening.

While some retailers continue to buck the downward trend, it is the restructuring specialists, such as Kroll, Hilco and Gordon Brothers which are profiting from the retail slump. They are already putting their money on retailers that will go bust this year and they are not planning any long holidays in January, February and March.

BHS

Who are they? Bhs is the stalwart of the high street which targets value-conscious shoppers. Bhs was taken over by retail tycoon Sir Philip Green in May 2000 for £200m.

Did you know? In 2005, Bhs resurrected its British Home Stores fascia more than 20 years after it had disappeared from the high street. Performance The true state of its profits and sales is unclear, as the last set of accounts filed by Bhs were for the year to 1 April 2006, when its pre-tax profits more than halved to £31m.

Why are they doing badly? Bhs has been hit by the juggernaut growth of Primark and the continued growth of clothing sales at Tesco, Asda and Sainsbury's. Bhs suffers from an image problem among younger shoppers.

LAND OF LEATHER

Who are they? The sofa specialist trades from 109 retail stores in the UK and the Republic of Ireland.

Did you know? Land of Leather unveiled a rescue package to raise nearly £15m in a placing and open offer in June to avert a financial crisis.

Performance: Its like-for-like sales had plummeted by 35 per cent in the six weeks to 6 June.

Why are they struggling? Land of Leather has felt the full force of customers halting big-ticket purchases and trips to out-of-town retail parks, as a result of soaring petrol costs. It was also hit by the administration of Sleep Depot this year, which stocked products in a large number of its stores.

WOOLWORTHS

Who are they? Woolies is a high-street institution which has more than 800 stores. It also has a lucrative wholesale entertainment and publishing businesses, Entertainment UK and 2 Entertain.

Did you know? Woolworths is seeking a new chief executive after it revealed Trevor Bish-Jones is to step down.

Performance: Total group sales for the 19 weeks to 14 June fell by 1.9 per cent. Its retail division delivered a meagre adjusted profit of £3.4m in the year to January.

Why are they struggling? Woolworths' customers are feeling the pinch at the lower end of the socio-economic spectrum and it is fighting fierce competitors in the shape of the catalogue giant Argos and the big grocers.

DSG INTERNATIONAL

Who are they? Pan-European electricals retailer, best known for its Currys.digital and PC World stores.

Did you know? DSGi faces the threat of the US electricals giant Best Buy opening stores in the UK next year.

Performance: In the 53 weeks to 3 May, DSGi made a pre-tax loss of £192.8m, compared with a profit of £114.1m over the previous year.

Why are they struggling? DSGi is trying to turn around its Italian business. In Britain, it has suffered from shoppers cutting back on big-ticket items, competition from online retailers and less-than-stellar customer service, although its group chief executive John Browett has vowed to turn this around.

MARKS & SPENCER

Who are they? High street bellwether and the UK's biggest seller of clothing, which has suffered a slumping share price and sales recently.

Did you know? M&S was founded by a sole trader, Michael Marks, an immigrant from Belarus who owned a market stall in Leeds in the 1890s. After Thomas Spencer joined the company in 1894, it became Marks and Spencer.

Performance: For the 13 weeks to 28 June, M&S's UK like-for-like sales tumbled by 5.3 per cent. Its general merchandise sales fell by 6.2 per cent, while underlying food sales slumped by 4.5 per cent.

Why are they struggling? Food sales at M&S are down as customers switch to cheaper grocers.

QS

Who are they? A value fashion retailer, which is rebranding many stores to Store Twenty One, with more than 200 stores.

Did you know? QS is adding concessions into some Somerfield and Co-op stores.

Performance: QS made a pre-tax loss of £25m for the year to 29 March and is believed to be renegotiating a bank loan.

Why are they struggling? QS has been outmuscled in the value fashion market by Primark and the big grocers. It needs to attract a larger number of younger stoppers into its stores, which is one reason why it is rebranding its estate.

SPORTS DIRECT

Who are they? The discount sports goods chain has 375 stores in the UK and owns brands such as Donnay and Lonsdale. Sports Direct was founded by Mike Ashley, also the owner of Newcastle United football club.

Did you know? Mr Ashley joked that his ex-wife had decided to sponsor Golddigga, a fashion chain targeted at young women, bought by Sports Direct.

Performance For the year to 27 April, Sports Direct delivered underlying pre-tax profits down 51.1 per cent to £85m.

Why are they struggling? Sports Direct's customer base represent the most vulnerable consumers to a prolonged credit crunch.

HOMEBASE

Who are they? The Home Retail Group-owned DIY chain has more than 300 stores in the UK and Ireland.

Did you know? Homebase was founded by Sainsbury's and the Belgian retailer GB-Inno-BM in 1979.

Performance: For the 13 weeks to 31 May, Homebase's like-for-like sales declined by 12 per cent.

Why are they struggling? Homebase is more reliant on residential DIYers than rivals B&Q and Wickes. However, Homebase's performance is likely to bounce back if the summer weather improves or the housing market escapes a prolonged slump.

MFI RETAIL

Who are they? Furniture and kitchen retail with more than 200 stores.

Did you know? In 2006, the loss-making retail arm was sold to Merchant Equity Partners for a nominal fee of £1.

Performance: Last week, MFI brought in Kroll Talbot Hughes, a restructuring firm specialising in distressed businesses, but the retailer denied it was in trouble.

Why are they struggling? MFI operates in a crowded market and its brand no longer has the clout it used to have. But it is suffering, along with many others in the home improvement market, as customers put off buying new kitchens and furniture.

HABITAT

Who are they? UK-based international home furnishings retailer founded by designer Sir Terence Conran.

Did you know?In the past two months alone, Habitat's group chief executive and UK country manager have resigned. Performance: Habitat is thought to be finding trading challenging, although actual sales and profits are unclear. For the year to 25 March 2007, Habitat recorded a pre-tax loss of £10.9m.

Why are they struggling? Habitat is suffering from a lack of stability among its top brass. Customers are cutting back on big items and some view Habitat as being too expensive.

Retailers that have already succumbed

There have already been a plethora of retail administrations this year and more are set to follow. The retailers that have hit the buffers span a variety of sectors, but the furniture and value fashion sector have claimed more victims than most.

Many of those that have hit the buffers have been owned by private equity firms, which bought them in highly leveraged deals in the past five years. As retail trading has slumped, anxious banks reached to pull the plug as profits fell short and banking covenants were breached.

The retail year kicked off with a flurry, as it often does, in January, as the shoe chains Dolcis and Stead & Simpson fell into administration and the discount bookseller The Works followed on 31 January. An unspoken truth in the sector is that banks often wait until after the lucrative Christmas trading and the tills have been emptied before calling in the administrators.

In addition to footwear, 2008 has turned into a horror story for a number of clothing retailers, although some of the casualties had been on the watch list of restructuring experts for a long time. In the spring, the value clothing chains Ethel Austin and MK One collapsed. In their previous guises, both chains were unable to compete with Primark.

However, if the fashion sector has been badly buffeted by the credit crunch, the furniture sector has felt the full force of a credit crunch twister ripping through their retail park stores. The recent falls in like-for-like sales at ScS, which hit the buffers this month before being brought out of administration by a US private equity firm. One private equity firm licking its wounds this week is Alchemy Partners, which backed the £52.4m acquisition of the flooring specialist Floors-2-Go in December 2006. Floors-2-Go became the latest retailer to fall into administration on Monday evening.

While some retailers continue to buck the downward trend, it is the restructuring specialists, such as Kroll, Hilco and Gordon Brothers which are profiting from the retail slump. They are already putting their money on retailers that will go bust this year and they are not planning any long holidays in January, February and March.