After the demise of Woolworths in 2008, Wilko sought to fill the gap left by this once cherished high street retailer. Sadly, history appears to have repeated itself with Wilko appearing to exit the retail market in the very same way. It could be said that the lessons learnt from Woolworths’ collapse were forgotten far too soon.
Wilko entered administration on 10 August 2023, placing approximately 12,500 jobs at risk. Since entering administration, PwC have sought to achieve a rescue deal from other big box retailers. In order to ensure a solvent sale, any deal would need to overcome the hurdle of Wilko’s reported “bill” of £70 million. Whilst some offers have been made, hopes seem to have been dashed as most of these offers have fallen through.
Whilst a rescue of Wilko appears unlikely, some hope has been found in budget retailer B&M with its willingness to take over 51 of the chain’s 400 stores. But this, sadly, leaves the need to shut down 52 stores, resulting in excessive job losses.
What went wrong with Wilko?
The decline of Wilko can be attributed to various factors; Brexit, the decline of the High Street, Covid-19 and the current financial crisis. However, these issues are not new, and the leadership of Wilko should have been aware of them for some time and adapted accordingly.
Wilko, as with many retailers in a post-Brexit and post-Covid world, should have struck while the iron was hot, so to speak, and adapted to become relevant to the current market. Shoppers are increasingly making their purchases online compared to retail stores; online purchases accounted for 27% of UK retail sales for the month of July 2023, peaking at 37.8% in January 2021, compared to pre-covid sales of 17.1% in July 2018. Although Wilko had a small online presence, its business model relied heavily on instore purchases and it therefore failed to capture online sales opportunities.
Furthermore, Wilko failed to successfully capture or fully understand its market. DIY rivals such as B&Q and Homebase are typically located at out-of-town retail parks with car parks attached so shoppers can easily take their large purchases home, whereas Wilko are generally located in higher priced city centre locations where customers will be less able to purchase larger items. Being located within city centres will also carry hefty rentals. Wilko was also not able to compete price wise with other discount retailers such as B&M and Poundland nor with the interior design ideas of the likes of Dunelm. This leaves the question where did Wilko fit and what was their target customer?
What lessons can be learnt from Wilko?
Wilko made a pre-tax loss of £36.8million for the year ending January 2022 and their Strategic Report dated 29 January 2022 showed that the company lost £42million in sales compared to the previous year. One would think this would have raised a red flag for the directors of Wilko sparking early intervention to restructure and reconsider the Wilko offering. However, Wilko waited until January 2023 to restructure; borrowing £40million from Hilco (which amount remains yet to be paid) and making changes to its management structure. Without acting when it was most needed, Wilko risked its business.
So what can be learnt from the downfall of Wilko?
In this ever changing and evolving retail market, retailers need to adapt to survive in the market. Whilst increasing an online presence has been key for many retailers, the future of retail is always changing and developing so retailers need to adapt to survive.
A company does not have to wait until it is in severe financial distress until it considers restructuring. Restructuring may provide practical and operational changes which may be beneficial to a company including restructuring any debt the company may have built.
Some things a company can look out for:
- Cashflow – is there a constant shortage of cash? Cash is king after all.
- Decline in revenue – healthy businesses grow, if there is a lack of sales growth this could be due to a lack of customer support, which is key to success.
- Business and market risks – changes in the market and external environment may impact a company’s financial health.
We can only hope that the cycle does not repeat itself and retailers learn from Wilko’s failings. Afterall, and at the expense of repeating ourselves, history will always find a way to repeat itself.
Should you or your company require advice in relation to corporate restructuring and insolvency, please speak to Kerri Wilson.