By Mark Fairlie
Toy retailer Toys R Us and electronics retailer Maplin both went into administration on Wednesday, 28th February 2018.
This blow to the British retail sector has put up to 6,000 jobs at risk at a time when many on the high street are suffering from the headwinds caused by the drop in the value of the pound, the large rise in business rates, and increased price-led competition from other retailers and the internet.
Toys R Us
Toys R Us put itself into administration after being unable to meet a £15m VAT bill. Falling retail sales meant that the cash expected to be able to pay HMRC was not generated.
The company, originally founded in the United States in 1947, started UK operations in the late 1980s, eventually expanding to its maximum size of 106 branches.
Last December, the company announced that they would be closing at least 26 of their UK stores as part of a company voluntary arrangement (CVA). A CVA is an agreement between a company and its creditors which gives a company to restructure itself back into profitability and technical solvency. The announcement on the 28th February now meant that all stores would eventually be closed – they remain open until further notice from the administrator.
The administrators advise that anyone with a gift card or a voucher should spend them as soon as possible. No more gift cards would be offered for sale to customers. People who used the company’s “time to pay” service which allows customers to spread the cost of a toy over 12 weeks, picking the goods after the final payment has been made, will still receive their goods as long as any outstanding balance is paid and that the goods are collected before 11 March.
Speaking to BBC News, a female worker in their Sheffield store said that the news
“didn’t come as a surprise…It is something that’s been rumoured within the company for a while now…It’s sort of always been felt that it was us employees and managers and that the people who were higher up knew something we didn’t.”
A removal man interviewed by the Guardian stated that “It’s like a relic from the 80s…The last time I came here, I was playing with Transformers…I’ve just compared one item they’ve got over there to what’s on eBay. It’s £40 and you can get it for £15 online.”
2,500 jobs across Maplin Electronics’ estate of 217 stores have been put at risk following the company’s announcement that it was going into administration.
Founded in 1972 as a small mail order business, the company opened its first store a couple of years later in 1974 and rapidly expanded its retail operations thereafter. It still maintains a significant mail-order business as well as a large internet site offering goods for delivery or in-store collection.
Maplin recently launched three service guarantees for customers offering a price match with other retailers (but not internet stores), a 365-day no-questions money back guarantee and free delivery on products purchased within the store.
The company’s bosses had known that it had been in trouble for a little while as it had been trying to seek a buyer to take it over, according to the Sun newspaper.
Speaking to the same newspaper, its chief executive Graham Harris said,
“I can confirm this morning that it has not been possible to secure a solvent sale of the business and as a result, we now have no alternative but to enter into an administration process…This necessitated an intensive search for new capital that in current market conditions has proved impossible to raise.”
ITV News reports that, because Maplin’s debt is lower than Toys R Us’ debt and that its largest creditor is the private equity firm that owner is, its administrators PWC, “seem much more optimistic of salvaging something than (Toys R Us administrator) Moorfields do.”
Its owner, Rutland Partners, took over the company at a time when it was barely profitable with a £85m loan bearing a 15% interest rate. Despite that, chief executive Graham Harris told the Sun that the collapse was down to a “Brexit-hit pound, a weak consumer environment, and the withdrawal of credit insurance”.
Future of retail and the High Street
In his Telegraph business opinion column, Ben Marlow stated that the “demise of Toys R Us and the high street can’t be blamed on Amazon alone.”
Toys R Us retail locations “are becoming less popular”. 60% of toy sales are now online but Marlow believes that the
“rise of so-called multi-channel rivals like Smyths and The Entertainer has been more devastating…The Entertainer has thrived by opening stores on busy high streets (and) (a)t Irish chain Smyths, growth has been extraordinary, outpacing every other toy retailer including Amazon…(I)ts shops are much more exciting for children, while its website is quick and easy to navigate, and delivery times much shorter than Toys R Us.”
Speaking to the Daily Star, Richard Lim, chief executive of Retail Economics, said that Toys R Us had failed to “embrace omnichannel”, its retail experience failed to keep up competitors, and the cost burden of running 106 stores was too high.