Money Talk: High Street in crisis? What does it means for forecourts?

It seems that you can’t listen to a news bulletin at the moment without hearing about yet another High Street retailer or restaurant chain either closing completely or undertaking some form of re-structuring which inevitably involves closing a significant number of outlets and losing hundreds or thousands of jobs. Some very familiar names look as if they’re going to disappear completely: Toys R Us and Maplin seem set to join the recently-departed BHS; while others (eg Jamie’s Italian, Prezzo, New Look and Carpetright) are trying to survive by making drastic cuts to their networks and taking the Company Voluntary Arrangement (CVA) route to reduce their liabilities in the hope that what’s left of the business can trade its way out of trouble.

When it comes to explaining the reasons for this apparent crisis in retail (and bear in mind that this isn’t just happening in the UK the story is the same in the US, for example) the list of contributory factors trotted out each time has also become depressingly familiar: the internet, business rates, minimum wage rate increases, eroded consumer spending power, too many stores, debt, etc. All of which are indeed valid, with the precise poison cocktail of those factors probably unique to each individual company involved. Sometimes the underlying cause seems quite obvious for example most analysts agree that Toys R Us had a retail network created in the 1980s and 1990s which hadn’t really changed since then. The lack of development and investment had left them operating in a sort of time warp. Looking at some of the struggling restaurant chains, the simple basic cause of their problems appears to be one of site numbers: they expanded very rapidly a few years ago but just how many nearly identical clones of a faux-Italian eatery does there need to be across the country?

At this point you may be thinking that you’ve heard all this before and what’s it got to do with petrol retailing? After all, we don’t suffer competition from the internet, fuel is more of a distress purchase rather than discretionary spending; and anyway it’s hardly like there are too many forecourts left. Well, true enough, but there are some factors in the current retail crisis which might be of relevance to the petrol retailing world and from which some useful lessons might be learned.

primary factor

The primary one is from looking at those struggling retail chains that are trying to restructure via the CVA route. In most cases that means going back to the people who actually own their premises and saying that unless the landlord agrees to cut or defer rents, or let them out of long-term leases for sites that aren’t generating any profit, then the retailer will simply fold, leaving yet another boarded-up shop.

Another use of the CVA is to try and renegotiate the company’s debt to its lenders. You have to remember that many retail chains are owned by companies which borrowed heavily in order to set up the company in the first place, or to expand their operations.

historic paralells

As we’ve mentioned before, there are some historic parallels between the fuel retailing and hospitality industries. One of these is that the major brewers once owned and operated very large numbers of pubs, but because of legislation had to later choose to stay as brewers and sell their pubs to new pub cos or give up brewing and become a pub co. Over time some of the pub cos split, with some becoming property companies and others pub operators. Sometimes that divergence in interest could become a clear conflict. There were times when the property owner appeared completely oblivious to the ability of the site operator to continue paying the rent. The end result was often a closed pub, which only made any kind of sense if the property could be sold or leased for some other use. Of course if it was in the right place at the right time that might actually happen.

As far as petrol retailing was concerned, the oil companies who used to own and run large site networks weren’t forced to choose between ownership and operation of those sites, but did so for their own reasons. And, when they did, the buyers of their networks were often a hybrid between a property investment company and a fuel retailing company. Potentially therefore there can be a conflict between the property owner’s need to make a return on their property and the site operator’s need to pay a rent which their business can afford.

Hopefully today’s petrol retail network owners will recognise a sensible balance between the two and avoid much of the misery that’s afflicting the High Street.