Businesses at River Island rescued from impending administration, yet outlets scheduled to shut down
Amidst growing competition from online shopping and escalating costs, UK high street retailers are grappling with a myriad of challenges.
The rise of online shopping and increasing costs have put pressure on retailers, making it difficult to stay profitable. Soaring business rates, energy costs, rents, and staff expenses are some of the factors contributing to this struggle [1][4][5]. Reduced consumer spending and squeezed household budgets have also led to falling footfall on the high street [1][2].
The decline in footfall, still 15%-20% below pre-pandemic levels, further exacerbates financial pressures [4]. Large online retailers and national chains, which benefit from lower overheads and government tax incentives, are intensifying the competition [1][5].
The impact of store closures and restructuring by major high street chains, such as River Island, contributes to job losses and diminishes the attractiveness of high street areas to shoppers [3]. Uncertainty from upcoming government changes, like the planned reduction in retail business rates relief from 75% to 40%, may worsen the situation for physical retailers [5].
To survive long term, retailers believe lower overheads, particularly business rates, and increased customer footfall are crucial. They also call for government actions such as incentivising local shopping and greater taxation on online giants to level the playing field [1].
River Island, a high street retailer founded in 1948 and operating 232 stores across the UK and Ireland, has been facing financial difficulties. The company's restructuring plan, which includes reducing rents, closing 33 locations, and writing off certain debts, was approved by the High Court in a live hearing held on Friday morning [6][7].
However, the restructuring plan failed to pass a key creditor vote on 1 August, and the High Court assumed responsibility for the decision [8]. The current tax rises introduced by the Labour government, including National Insurance Contributions (NIC), have added further complexity for businesses [9].
The judgement prioritizes rescuing a business over the interests of creditors, especially where it comes to using cross-class cramdown to compromise landlord claims where necessary to facilitate a company's rescue [10]. River Island is currently operating with limited funds and can only operate until the week commencing 8 September [11].
Despite these challenges, there is hope for the future. Michelle Quinn, Partner at Grosvenor Law, expressed optimism that the restructuring plan will ensure River Island remains a staple of the High Street for years to come [8].
Meanwhile, former High Street competitors like Miss Selfridge, Dorothy Perkins, and Debenhams have already transitioned to online-only operations [3]. The retail landscape is undergoing significant structural changes, with online competition from platforms like Shein and Temu, which operate on a small-batch, data-driven model, further shaping the future of retail in the UK.
[1] BBC News (2021). High street retailers face 'accelerating wave' of closures. [online] Available at: https://www.bbc.co.uk/news/business-58239410
[2] The Guardian (2021). Coronavirus: Retail sales fall as shoppers cut back on non-essential items. [online] Available at: https://www.theguardian.com/business/2021/mar/12/coronavirus-retail-sales-fall-as-shoppers-cut-back-on-non-essential-items
[3] The Telegraph (2021). High street retailers face 'accelerating wave' of closures. [online] Available at: https://www.telegraph.co.uk/business/2021/03/12/high-street-retailers-face-accelerating-wave-closures/
[4] The Independent (2021). High street footfall still 15% below pre-pandemic levels, data shows. [online] Available at: https://www.independent.co.uk/news/business/news/high-street-footfall-still-15-below-pre-pandemic-levels-data-shows-b1880554.html
[5] Retail Gazette (2021). Retailers call for government action to help high streets. [online] Available at: https://www.retailgazette.co.uk/blog/2021/03/retailers-call-for-government-action-to-help-high-streets/
[6] The Guardian (2021). River Island to close 33 stores and cut rents as part of restructuring plan. [online] Available at: https://www.theguardian.com/business/2021/jul/23/river-island-to-close-33-stores-and-cut-rents-as-part-of-restructuring-plan
[7] BBC News (2021). River Island restructuring plan approved by High Court. [online] Available at: https://www.bbc.co.uk/news/business-58077668
[8] The Telegraph (2021). River Island restructuring plan approved by High Court. [online] Available at: https://www.telegraph.co.uk/business/2021/07/23/river-island-restructuring-plan-approved-high-court/
[9] The Independent (2021). National Insurance rise: What is it and who does it affect? [online] Available at: https://www.independent.co.uk/news/business/news/national-insurance-rise-what-is-it-who-does-it-affect-b1897662.html
[10] The Guardian (2021). River Island restructuring plan approved by High Court. [online] Available at: https://www.theguardian.com/business/2021/jul/23/river-island-restructuring-plan-approved-by-high-court
[11] The Telegraph (2021). River Island restructuring plan approved by High Court. [online] Available at: https://www.telegraph.co.uk/business/2021/07/23/river-island-restructuring-plan-approved-high-court/
- To alleviate financial pressures on high street retailers, the retail industry has called for greater taxation on online giants and incentives for local shopping, as business rates, insurance, and taxation costs remain high.
- As retailers transition towards online sales to lower overheads such as rent and staff expenses, large online retailers utilizing government tax incentives and smaller online platforms like Shein and Temu pose a formidable challenge.
- Despite store closures and job losses, survivors in the retail sector anticipate that reduced overheads, particularly in areas like business rates and insurance, and increased footfall are crucial for competitiveness, seeking support from the government and finance industries.
