Scotland's troubled high streets: Dark days lie in store

Struck down by the wave of challenges which have engulfed the sector since the pandemic broke out, with the cost of living crisis heaping pressure on cashflow and hitting trade, the failure of the budget retailer has cast into doubt the future of around 12,500 jobs and 400 stores across the UK.

Administrators at PwC were understood to have set a deadline of last night for bids for the chain, but even if Wilko survives it is anticipated that any rescue deal would not preserve all of its stores and the jobs it provides.

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Analysts have suggested that, should a buyer step forward with a viable bid to keep the Wilko brand alive – speculation has identified discount chains Home Bargains, B&M and Poundland-owner Pepco among potential bidders – it would likely be keen to cherry pick the best of the assets, which could ultimately lead to closure for the chain’s poorer performing outlets.

At the smaller end of the retail scale, there was further evidence this week of the challenges facing high streets in Scotland.

Administrators for the collapsed Wilkies clothing chain, which can trace its roots back to 1898, launched an “everything must go” sale at the group’s store in Kirkcaldy. It comes before the doors close for the final time at the outlet later this month.

When that occurs, five of the original 11-strong Wilkies chain will have closed for good, with the remaining six having transferred to a new entity – led by the same managing director, Karen Forret –  as part of a pre-pack deal announced when the company fell into administration on June 29.

The surviving Wilkies outlets are in Largs, Castle Douglas, Peebles, Perth, Ballater, and Helensburgh, while shops in Edinburgh, North Berwick, Hamilton, and Falkirk have already closed.

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While Wilko and Wilkies operated in different parts of the retail sector, both were long-established players in their respective markets, and beset by similar challenges. The two companies were weakened by the pandemic before being hammered by rising energy and labour costs, a cost of living crisis and high interest rates, which have combined to severely hamper trade.

Given that there is no immediate sign of those pressures easing – official figures published yesterday showed annual UK consumer prices index inflation remained high at 6.8% in July, sparking talk that interest rates could be hiked further from the current 5.25% – it would be foolish to think Wilko and Wilkies will be the last to fail amid the current challenges.

Indeed, a report published this week by restructuring specialist Begbies Traynor gave plenty of cause for concern as it highlighted a rise in the number of Scottish businesses displaying signs of distress.

The report found there was a 6.3% rise in the number of Scottish firms experiencing significant or early distress in the second quarter of the year, compared with the same period in 2022.

At the same time, the number of firms across the UK showing similar signs of distress – which Begbies Traynor said refers to deterioration in key financial ratios and indicators such as working capital, contingent liabilities, retained profits, and net worth– increased at the higher rate of 8.5%.

The report also concluded that levels of significant distress in Scotland had increased by just over 1% in the second quarter compared with the opening three months of the year.

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According to Begbies Traynor, its latest Red Flag report underlines that the legacy of the pandemic is continuing to haunt businesses in Scotland, which are finding the cost of debt more expensive because of high interest rates.

And Ken Pattullo, managing partner for the firm in Scotland, fears this “perfect storm” will ultimately lead to a “surge in company collapses” in the months ahead.

“Businesses are facing a perfect storm of challenges – as they struggle to recover from the catastrophic impact of the Covid pandemic, they are also now having to find funds to repay bounce back loans during the worst cost of living crisis in living memory,” he said.

“What’s more, interest rates are continuing to increase leading to unmanageable debt, and material and labour costs are also continuing to spiral along with rising inflation, the impact of the conflict in Ukraine and higher energy bills.

“In the midst of ongoing economic uncertainty, many businesses feel they are at the end of the road and simply cannot afford to continue trading. While companies in Scotland appear to be performing slightly more strongly than those across the UK, for many, time is simply running out and we expect to see a surge in company collapses in the coming months.”

The UK high street has changed enormously in recent years. Huge names such as Woolworths, BHS, Debenhams, and Top Shop have disappeared as bricks and mortar shops felt the heat from the rise of online retailing, while more recently the pandemic and attendant lockdowns hammered footfall.

While there are signs of footfall recovering in towns and cities as people spend more of their working weeks in the office, the sheer cost of doing business allied to pressure on consumers from inflation and interest rates is turning the screw again.

That much was evident in figures published by the Scottish Retail Consortium yesterday, which found total retail sales in Scotland declined by 3% year-on-year in July, when adjusted for inflation, after hopes for spending on summer clothing were dashed by “unseasonable weather”. This came after total sales had grown by 2.9% year-on-year in June.

Ewan MacDonald Russell, deputy head of the SRC, warned that “this may not be the last month of disappointing sales in the near future” as the economy feels the weight of the “dual burden of high inflation and rising interest rates”.

With the end of summer in sight, it truly is a depressing prospect for everyone wishing for better days for the high street.