Thursday, February 22, 2024

The Wilko name may live on but job losses are inevitable | Business News

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An update on the future of Wilko, the collapsed discount and variety retailer, is expected imminently from its administrators PwC.

The former family-owned company went into administration two weeks ago – making it the third biggest casualty in the retail sector during recent years after Sir Philip Green’s Arcadia empire and the department store chain Debenhams.

Sky News revealed a week ago that PwC had given prospective buyers until last Wednesday to submit initial offers for some or all of the business.

It is now working through those offers.

Wilko’s 12,500 employees were given some cause for optimism when, on Friday afternoon, the GMB union said that, after meeting with administrators, there were “genuine grounds for hope”.

The union’s national secretary, Andy Prendergast, said there had been “expressions of interest from organisations who are considering taking over at least some parts of the business.”

Among those who have been linked with a potential acquisition of former Wilko assets are its chief rivals, including the FTSE-100-listed B&M; Poundland, which is owned by Warsaw-listed Pepco Group; and The Range and Home Bargains, both of which are privately owned.

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What happened to Wilko?

Sky News has also revealed that, prior to its collapse, Wilko also held talks with the private equity firms Gordon Brothers, which owns Laura Ashley; OpCapita, whose assets include the Football Pools and Alteri, which owns Bensons for Beds.

They may also be interested in parts of the business.

Yet it is far from clear whether any buyer would want the entire Wilko business which, at the time of its collapse, operated some 400 stores.

Wilko had, prior to its demise, been seeking rent cuts at a number of its stores – a significant number of which were not trading profitably.

Industry speculation is that, at best, buyers will be found for between 200-300 outlets.

Wilco store in Wood Green shopping city
Image:
The Wilko store at Wood Green Shopping City, north London

Reports at the weekend suggested that would-be buyers have submitted offers for between 40-50 stores but that one potential buyer has offered to retain as many as 300 outlets.

That means some redundancies are inevitable.

There is, though, some residual value in some of the sites. The data analytics and consultancy group Global Data has reported that the UK discount and variety retail sector is set to grow by 5% per year during the next five years to more than £57bn in total.

Therefore, even though the market is intensely competitive, it will be worth competitors acquiring some Wilko sites.

That was certainly the case when, in 2008, Woolworths collapsed. Nearly a quarter of the old household favourite’s 800 or so former stores were acquired by the very names now being linked with acquisitions of some or all of Wilko – Poundland and B&M – although, two years after the failure of Woolies, some 300 stores had yet to be bought and remained unused.

Poundland acquired 57 former Woolworths stores, 47 were bought by the 99p Stores chain (which was bought by Poundland in September 2015), B&M picked up 43 while Poundstretcher acquired 22.

General view Woolworths store at 42-46 Abington Street, Northampton. Northamptonshire. NN1 2AZ
Image:
Woolworths collapsed in 2008

As with Woolies, some former Wilko stores may also end up in time being acquired by supermarkets. Iceland was the biggest single buyer of former Woolworths stores, picking up 59 of them, while other sites vacated by Woolworths were acquired by Tesco, Sainsbury’s and Waitrose.

Buyers, though, will be discriminating in the former Wilko outlets that they take on.

Clive Black, retail analyst at investment bank Shore Capital and widely regarded as one of the industry’s best sector-watchers, told clients last week: “One significant factor contributing to Wilko’s collapse is the location of its stores, primarily situated in high streets and shopping centres. These areas have experienced a notable decrease in footfall, reportedly around 30% lower, compared with levels before the pandemic.”

Mr Black said that made a bid for the entire Wilko estate unfeasible.

He added: “It might be more plausible for B&M to concentrate on acquiring stores located in out-of-town retail parks. These locations tend to be less affected by the structural decline in foot traffic seen in town centres and secondary malls.”

It also seems possible that the Wilko brand itself will attract interest. The trade publication Marketing Week last week highlighted evidence from YouGov’s BrandIndex platform which suggests that, even after going in to administration, Wilko’s overall ‘brand health’ – a measure of how it is perceived by consumers – is stronger than the retail sector as a whole and significantly ahead of Home Bargains, B&M and Poundland.

Marketing Week reported: “In the past year, Wilko has also consistently outperformed these rival retailers on both quality and value perceptions…Wilko is perceived as being much better quality than B&M, Home Bargains and Poundland.”

That means the brand may live on. The Sun reported at the weekend that one of the potential bidders speaking with PwC has expressed an interest in retaining the Wilko name. It is likely that this would be for the purposes of retaining an online presence. Brands such as Topshop – previously owned by Arcadia – and Debenhams both live on as online-only brands.

But Wilko may yet retain a physical presence, too. A template here could be Paperchase, whose brand name and intellectual property was acquired in January after it collapsed into administration by Tesco.

So there are plenty of possibilities for some of Wilko’s assets – which is why speculation has begun to circulate that it may not until some time next week before PwC can provide an update.

What is certain, though, is that Wilko will not continue in the form in which it did prior to its collapse.

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