Edinburgh Woollen Mill Group (EWM) has become the latest in a rapidly growing list of retailers to look towards a major restructuring after feeling the impact of the coronavirus pandemic.
It told staff on Friday that it has filed a notice of intent to appoint administrators to allow insolvency specialists (FRP Advisory) to run the rule over the business.
The company is a mainstay on British high streets and also runs a raft of other retail brands, including Peacocks and Jaeger, which it has acquired over the past 10 years after their own previous financial difficulties.
High street footfall was already under pressure at the start of the year as shoppers moved online, but restrictions in the face of the pandemic have proved a heavy blow to many retailers.
Today the British Retail Consortium revealed that footfall in September was down 30.1% on last year’s figure.
Here we answer key questions over what EWM’s actions mean and what led to this situation:
What does filing a notice to appoint administrators mean?
On Friday, the group filed its notice to appoint administrators at the High Court.
It said it will help to protect it from creditors who could potentially force the business into administration themselves through legal action.
The notice of intention helps businesses by temporarily halting existing or pending creditor action, by setting up a moratorium that protects them.
The moratorium period is only 10 days but usually gives sufficient time to manoeuvre a company away from the immediate threat of liquidation.
Steve Simpson, chief executive of the group, said the move will provide it with “a short breathing space to assess options” which will include a potential sale.
How are workers and stores likely to be affected?
The company said it could be sold, or see parts sold, as well as undergo a “some significant restructuring”.
Simpson said “there will inevitably be significant cuts and closures” as a result of the move.
Nevertheless, all stores will continue trading and further details will be announced in due course.
The company has received unsolicited approaches for its heritage fashion brand that include Jaeger, Austin Reed and Jacques Vert, and after a valuation process of value fashion chain Peacocks, an American investor is said to be interested in the brand.
Is this new and how does it differ from rivals’ actions?
The action of filing a notice to appoint administrators is common and is the first step towards a restructuring or allowing the company to be sold out of administration.
EWM’s announcement strikes a similar note to department store chain Debenhams, which filed its notice at the start of April after first being affected by the pandemic.
Similarly, it said the move would help it ward off legal action from creditors as it reviewed options to secure its long-term future.
A week after filing its notice, Debenhams revealed plans to shut seven UK stores, with the loss of 422 jobs, and said its Irish business, which had 11 stores and 1,400 staff, would cease trading as part of its restructuring.
A number of other fashion retailers, including Cath Kidston, Oasis Warehouse and Laura Ashley have tumbled into administration in recent months, resulting in a variety of restructurings, which included selling assets and pre-pack rescue deals.
Why is this happening now?
EWM said the move was in response to “harsh trading conditions” in the face of the pandemic, which caused it to shut all its stores from March.
It said the current background of a second wave of the pandemic and local lockdown restriction has now caused its recovery plans to unravel.
Alongside this, the group said that it has been hit hard by allegations, which it denies, related to Bangladesh-based garment suppliers.
The company dismissed claims that it failed to pay some of these suppliers in an attempt to cut costs for clothes they were unlikely to sell.
It is understood that the accusations have led to restrictions on the company’s credit insurance.
However earlier this week the Bangladesh Garment Manufacturers and Exporters Association admitted that its recent claims that EWM owed suppliers almost £27m were incorrect and that most of the bills had been paid or agreed.
Has the company got a history of insolvency?
The company was first founded in 1946, but was taken over by current owner, retail magnate Philip Day, in 2002.
Under his ownership, the company has expanded by acquiring a raft of troubled brands out of insolvency.
In 2011, the company bought ladies fashion brand Jane Norman out of administration.
Three years later, Jane Norman slipped into insolvency again and was bought back by EWM in a pre-pack administration. However, the brand was shut down in 2018 after its fortunes failed to reverse.
In 2012, the retail group also bought Peacocks, one of its largest brands, out of administration.
More recently, the group also bought high street brands Austin Reed and Jaeger after they faced financial troubles.
Last year, the company’s Bonmarche brand tumbled into administration but was swiftly bought back in another pre-pack deal.
Why has it been hit so hard?
Pippa Stephens, Retail Analyst at GlobalData, said that the group, while not exposed to large city centres, has been particularly hit hard as it has an older customer base that is reluctant to go out to the shops.
“The Edinburgh Woollen Mill group’s reliance on older customers will have exacerbated its struggles throughout the COVID-19 pandemic, as these shoppers remain the most cautious about returning to physical retail locations.
“Furthermore, while younger consumers have retained some desire to purchase fashion items, Edinburgh Woollen Mill’s shoppers will have fewer reasons to buy new clothing as many will continue to shield until the virus has been significantly supressed, making the retailer’s range largely redundant.
“Out of the group’s brands, Peacocks is likely to be the most desirable to potential buyers, as it is the largest fascia, with its UK clothing market share forecast to remain stable at 0.8% in 2020. Its value proposition will be appealing to consumers, since the UK’s ongoing recession and increasing unemployment rates will drive many shoppers to minimise their non-essential spending for the foreseeable future.
“In addition, its wide range of childrenswear will also be beneficial, as this has been the most resilient clothing sub-sector throughout the pandemic thanks to the need for frequent replacement purchases. However, Jaeger is less likely to attract bidders, due its premium price points and focus on formalwear, which is out of favour as consumers continue to work from home. The group’s core Edinburgh Woollen Mill brand will also lack appeal amongst potential buyers, as it has the greatest proportion of older shoppers.”