Decline of the high street

PrancingUnicorns

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Aug 14, 2018
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Hi all,

As many of you probably already know, companies on the high street are going through a rough patch at the moment, with many of them entering into CVAs.

My questions are mainly for Jaysen (but if anyone else has thoughts, please do share!):

1. How has the decline of the high street impacted firms, as a working lawyer? Do companies come in looking to pre-empt similar business consequences using law somehow?

2. This decline may be attributed to the PE firms that used to manage them (for example by piling on cheap debt, over-expansion). I was wondering are all your perspectives are on this matter?

Thanks!
 

Jaysen

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    Hi all,

    As many of you probably already know, companies on the high street are going through a rough patch at the moment, with many of them entering into CVAs.

    My questions are mainly for Jaysen (but if anyone else has thoughts, please do share!):

    1. How has the decline of the high street impacted firms, as a working lawyer? Do companies come in looking to pre-empt similar business consequences using law somehow?

    2. This decline may be attributed to the PE firms that used to manage them (for example by piling on cheap debt, over-expansion). I was wondering are all your perspectives are on this matter?

    Thanks!

    1. Restructuring and insolvency departments are very busy at the moment. When companies struggle, they need legal advice. Perhaps, they want to sell off non-core assets, restructure debt or make employees redundant. As you said, they can also try an agreement with creditors using a CVA or scheme of arrangement.

    Lawyers are there to negotiate, draft the documentation and advise on the best solution for a company using their knowledge of the law. If a high street business enters a formal insolvency process, lawyers will be there to advise both the directors and the administrators.

    For example. Kirkland & Ellis advised Toys R Us on its restructuring options: https://uk.reuters.com/article/uk-t...gh-restructuring-options-source-idUKKCN1BH2ZA

    Later on, when Toys R Us went into administration, Kirkland & Ellis advised the administrators: http://www.lex100.com/index.php/new...n-collapse-following-bleak-xmas-for-retailers

    2. You could definitely argue that. I wrote about this before in relation to Toys R Us: https://www.thecorporatelawacademy....rcial-news-summary-february-2018.20/#post-146. I would personally argue these companies were in trouble/would have collapsed anyway and that the fault lies in their ability to compete with e-commerce.
     

    Hazal

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    Sep 25, 2018
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    https://www.theguardian.com/busines...ificant-financial-distress-christmas-shopping

    It is very often that we cite the rise of online competition as a reason for the decline of high street retailers. But it looks like the online retailers too are struggling from shopping slump according to recent statistics despite the busy Christmas shopping period.
    Was thinking about this the other day and how it really isn't easy for the high street to blame online retailers when they're experiencing the same problems.

    Whenever I think about online retail, I always think about the margins that they operate with. An article I once read suggested that delivery contributes a huge chunk towards their costs, especially when it costs the same to deliver a lightweight top and a heavy winter coat. On top of that, we're living through a period where sales and discounted prices are the norm. Buyers feel better buying things at a discount, but then this perpetuates a downward spiral where costs get lower and lower until 1) their brand pretty much loses an image of costing a certain amount. If you know you can get a t-shirt for £5 for 40% of the year, you're unlikely to buy it for £10 for the rest of the 60% and 2) you make a loss to shift stock (which itself is a problem of fast-fashion: this need to constantly be changing our wardrobes.)

    This article - https://www.ft.com/content/ecec6bbe-0200-11e9-9d01-cd4d49afbbe3 - gave me some of the facts I've mentioned. It argues that ASOS' problems don't go away, they're a trend that keeps coming back.
     

    Eva

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    Mar 24, 2018
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    British retailers have suffered the worst Christmas sales since the financial crisis in 2008 - see the related FT article at: https://www.ft.com/content/c6d5cf04-141d-11e9-a581-4ff78404524e

    With staff bonus being threatened, drop in sales despite heavy price slashing and high street retailers' warning for more upcoming challenges, perhaps 'the worst is yet to come'. One may really question: 'is austerity really ending'?
     

    Jaysen

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    Patisserie Valerie: Scale of alleged fraud may be worse than first feared:
    https://news.sky.com/story/patisserie-valerie-owner-warns-on-scale-of-alleged-fraud-11609069

    I thought they'd turn this around but unfortunately not, Patisserie Valerie has gone into administration: https://www.bbc.co.uk/news/business-46965761.

    "Last week, Patisserie Valerie confirmed it had found 'extensive' misstatement of its accounts and 'very significant manipulation of the balance sheet and profit and loss accounts'."
     

    Daniel Boden

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    I thought they'd turn this around but unfortunately not, Patisserie Valerie has gone into administration: https://www.bbc.co.uk/news/business-46965761.

    "Last week, Patisserie Valerie confirmed it had found 'extensive' misstatement of its accounts and 'very significant manipulation of the balance sheet and profit and loss accounts'."
    Sad times always loved eating there... :(
     

    Jaysen

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    For those who have access to the FT: https://www.ft.com/content/14571e1a-61d8-11e9-a27a-fdd51850994c

    If you don't:
    • The number of chain-store closures is set to top 1,000.
    • More retailers are turning to the controversial Company Voluntary Arrangement (CVA) - I'll likely cover insolvency procedures in a future class/post, but in short, it's an process whereby companies come to an agreement with its creditors (usually leading to a write-off of some debt).
    • Companies using the CVA include Debenhams, Arcadia Group, Paperchase and Monsoon.
    • Over 900 stores have closed in the past two years including HMV, House of Fraser and Toys R Us.
    • Some have argued that retailers are using CVA's improperly, as a means to avoid rent payments.
    • Others have criticised the role of private equity firms where high debt and aggressive expansion has contributed to a series of recent retail insolvencies.
     

    Jaysen

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