2013 – The year of the administrations?

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Posted in:Business Finance, Corporate and Commercial, Insolvency and Restructuring|January 23, 2013 | Join the mailing list

It would have been hard to miss the increased number of administrations being reported in the news lately; however, as some of the larger brands fall victim to the economic slump, now is the time to take stock of the UK economy rather than
go into despair.

Administrations have been big news because they have been hitting big brands.  It is hard not to take notice when Blockbuster, HMV, Jessops, Comet, JJB, Clintons Cards, Game Group, Hawkins Bazaar and now this week, Manchester established
fashion brand Gio-Goi (only naming a few) all announce the appointment of Administrators.  With varying degrees of success some businesses were saved, some are still in the process of Administration whilst others now cease to exist.  However, statistics show
that whilst big names have been in the news the overall number of Administrations has actually remained relatively low.  Usually in times of recession those businesses that are not efficient are expected to fold allowing for a more competitive private sector
subsequently leading to economic recovery.  But in the current climate inefficient businesses still seem to be hanging on.

What is evident from the list of casualties above is that the UK high street and retail businesses have been hit the hardest.  Whilst there are numerous reports of retail sales falling throughout December, what fails to be mentioned is the
growth in online sales.  Statistics show that online sales rose 15.5% compared to this time last year, with incredible increases of 86% on Christmas Eve, 71% on Christmas Day and 17% on Boxing Day; further department stores such as John Lewis have seen online
sales increase by roughly 36%.

The Christmas period has highlighted the general trend of consumers moving away from the high street and towards online shopping where it is felt customers can shop around more easily to find the best value for money.  It is value for money
that has become a key concept during this period of recession.  Whilst companies such as HMV suffer, retailers such as John Lewis and Primark continue to go from strength to strength offering their target consumers value for the price that they are willing
to pay.

Further companies such as Argos have found adapting their business model to follow the consumer trend of online shopping has led to business growth.  For Argos, this has meant embarking on a click-and-collect initiative which allows customers
to shop online whilst still bringing them into the shop in order to collect purchases.  This idea has also been introduced by retailers such as John Lewis (including Waitrose), Currys and Next who have reported positive results from the business model allowing
for economic efficiency as there is not the additional delivery costs for the business.

It would seem that rather than 2012 being the year of administration it is the year of business evolution.

So what can be learnt and how can businesses survive?  First, it has become evident that there will not be a consumer led recovery; there is simply not the disposable income.  Second, for a business to survive it needs to adapt to the more
frugal consumer.  In practical terms this appears to be shifting away from the high street and expecting the consumer to come to you.  If fuel costs can be avoided they will be.  By developing online presence and alternative retail avenues, some businesses
are already experiencing growth.  However with the shift to an economy utilising the internet and social media, those who wish to exploit the opportunity must also be aware of the increased regulation and consumer protection which it entails.

To discuss any of the issues raised in this article and arising from structural change in your business please contact Stephen Foster, Head of Corporate at
stephenf@berg.co.uk  or by telephoning 0161 833 9211.

The information and opinions contained in this article are not intended to be comprehensive or to provide legal advice.  No responsibility for this article’s accuracy or correctness is assumed by Berg or any of its partners or employees. 
Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of the contents of this article.

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