What’s Going On Here?
Struggling department store House of Fraser has been purchased by Mike Ashley’s Sports Direct. The company purchased the department store for £90 million after it entered administration. This should result in thousands of jobs and most of the company’s stores being saved.
What Does This Mean?
House of Fraser called in the administrators after owing nearly £1 billion to creditors, most of whom were suppliers. The role of an administrator is to gather together the assets of an insolvent company and redistribute them among the company’s creditors. However, it has become apparent that over 1,000 different creditors of House of Fraser will not receive money from the administration, with Sports Direct only agreeing to pay creditors money that became owed to them after the takeover.
Why Should Firms Care?
The collapse of House of Fraser is another example of a worrying trend of large retailers struggling to make ends meet and being forced to close a large number of stores or indeed being forced off the high street altogether. Mothercare was forced to close around half its stores back in March, and in February Toys ‘R’ Us ceased trading entirely. This trend is clearly worrying for the clients of law firms whose primary form of trading is through high street stores. A predominant reason for the struggles of high street retailers is the vast number of consumers who choose to shop online instead. Out of all major developed economies, Britain has the largest percentage of online shoppers. This has led the Chancellor, Phillip Hammond, to announce that he is considering new taxes for online retailers in order to level the playing field.
Despite the possibility of such taxes being implemented, it is clear that high street stores will need to adapt in order to survive. It is inevitable that commercial law firms will advise their retail clients to place large focus upon their online stores in order to avoid the same fate that slow adapting retailers have suffered. John Lewis is a prime example of a store that appears to have reacted well to the internet shopper trend and has spent tens of millions of pounds revamping their online store. In the near future, we may notice further trends towards online shopping with retailers responding by making it easier and easier to shop online.
Just how much this will affect the high street remains to be seen, but for retailers with a reliance on shoppers physically entering their stores, the future looks bleak.
Article written by Matthew L.
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