Metis AM
In August, high-street retailer Wilko went into administration after several years of struggling. It’s a familiar tale: you may remember that it was Wilko that swooped in and took over many of Woolworths’ stores when it went into administration 14 years ago.
The problems that led to Wilko’s closure are multifaceted. Read on to discover some of the biggest factors that led to the collapse and what it could mean for the retail sector more broadly.
Covid lockdowns hit sales hard
The Covid lockdowns were tough for all high-street retailers, but Wilko seems to have been hit particularly hard. It relies heavily on footfall as stores are usually placed in high-traffic areas of the high street, unlike larger comparative stores such as B&Q and IKEA.
The Retail Insight Network reports that the chain dramatically underperformed compared to its peers during this time period. It seems as though Wilko’s homewares and DIY offering pales in comparison to the well-designed products offered by stores such as Dunelm and IKEA.
Similarly, Aldi’s “middle aisle” and B&M’s range seem to have been outdoing Wilko in popularity since before the pandemic began.
Expensive high-street stores became a drain on resources
Wilko’s city-centre locations were convenient for shoppers – particularly those without their own transport – but rent was another challenge for the company.
Low profit margins meant that the high cost of the rent was difficult to cover. In turn, this slowed cash flow and affected the company’s ability to pay other expenses, including suppliers.
Supply chain difficulties were exacerbated by global logistical challenges
Stock levels were frequently low as a result of Wilko missing key payment deadlines for suppliers, as mentioned above. The Retail Insight Network shared Wilko’s statement from its financial report for 2021, saying that “severe and widespread disruption to supply chains globally” had affected performance.
Following the reopening of factories after the Covid lockdowns, demand for goods across the world soared and manufacturers struggled to keep up. In addition, the Suez Canal blockage delayed the delivery of goods for businesses in all sectors. Wilko was hit particularly badly.
Meanwhile, as the report states, competitor B&M capitalised on their broad range of suppliers to ensure their bestselling items were always in stock, mitigating the impact of these challenges.
Poor management decisions meant the company didn’t respond to challenges quickly enough
A final point to mention is the role of company management.
Sky News reports that Nadine Houghton, national officer at the GMB trade union, stated “GMB has been told time and time again how warnings were made that Wilko was in a prime position to capitalise on the growing bargain retailer market, but simply failed to grasp this opportunity.”
There has been a series of personnel changes in the most senior leadership positions at Wilko over the past few years. This, coupled with what many deem to have been unwise management decisions in response to the company’s challenges, may have been the last straw for the company.
The retail sector remains strong despite Wilko’s collapse
The current economic climate is uncertain for many, and the headlines about Wilko’s collapse have done little to calm the nerves of those fearing an imminent recession.
Despite this, the retail sector more broadly seems to be on the up. The Retail Gazette reports that the discount retail sector in particular is set to grow by 5% a year as shoppers look to cut costs amid the cost of living crisis.
As such, Wilko seems to be an outlier for the sector rather than a foreboding of further collapses in the near future.
For retail investors, this provides a helpful reminder of the importance of diversification. By balancing your investments across a range of sectors, and investing in funds that include lots of businesses, you can mitigate the risk that your money is exposed to. By doing this, if one of the firms you have invested in outperforms, it could enable you to recoup losses from any that underperform.
Get in touch
If you’d like to know more about how you can protect your investments from the effects of economic events such as the collapse of Wilko, we can help.
Email enquiries@metiswealth.co.uk or call 0345 450 5670 today to find out what we can do for you.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
