Flat Cushions and Broken Beds – has the stuffing fallen out of the retail furniture market?
So the UK’s beleaguered retail sector is in the news again. The collapse of the Multiyork furniture chain and its associated business Feather and Black (“F&B”) has put a total of 573 jobs at risk. Being at risk of redundancy is never great but it always seems particularly harsh in the run up to Christmas.
History repeats itself
Multiyork’s range was always considered comparatively expensive. However, on the other hand it had a reputation for quality, so had survived being bought of Receivership in 1995 (remember those?) until now. F&B had a more chequered history, its core product was iron bedsteads, and therefore always subject to the vagaries of fashion and manufacturing costs. It was bought out of Administration in 2005 and since them operated as an in store concession within Multiyork’s 50 retail stores. Without its own standalone infrastructure it was always likely to follow Multiyork into administration.
Traditionally, the first quarter of each New Year sees a raft of retail insolvencies. Those retailers who got their Black Friday strategy wrong, didn’t shift enough stock before Christmas or had to cut their own throats to shift it in the January sales are forced to shut up shop. So what has happened at Multiyork to force it into administration now?
The pressure on “big ticket” sales
It’s really a case of the bigger you are the harder you fall. B&Q, John Lewis and AO have all recently reported a steep fall in the sale of “big ticket” items but of course they also sell smaller cheaper items at huge volumes and presumably are able to ride it out.
For the likes of Multiyork however, each sale is “big ticket”; and represents a serious financial commitment for the consumer either in terms of actual cash paid now or in entering a finance agreement.
As inflation continues to rise and wages remain static consumer spending is getting tighter and major purchasing decisions on home improvements, large TVs and furniture are being deferred. Not unsurprisingly, DFS have just announced a 22% fall in profits as a result of falling sales.
What’s next for Multiyork?
The Administrators have put Multiyork up for sale (but the owners had been trying to sell the business well before the administrators were appointed). Although a sale by the administrators will be of the assets only and in effect debt free, it remains to be seen who will be brave enough to invest in a sector that is unlikely to improve for some time.
In the meantime the Administrators continue to trade. Deposits in retail insolvencies can be very problematic; unless the deposit funds are segregated into separate trust accounts the depositors are treated as unsecured creditor. If the deposit was paid by credit card, consumer may have a claim under s78 of the Consumer Credit Act 1978 and can seek to recover their deposits from the credit card companies concerned. However, aggrieved depositors who thought they were buying products in good faith, always makes only for sensationalist TV and press coverage.
The Administrators of Multiyork are hoping seeking to meet all orders placed before administration and therefore offering customers a better outcome than usual. Presumably if they have sufficient materials in stock to meet a particular order, there should be enough cash profit from competing the order, even after allowing for the deposit paid, salaries and factory operational costs.
Of course this is a finite strategy and as stocks rapidly diminish if a sale has not been achieved it is likely that the Administrators will have no other option but to close Multiyork down in the New Year.
A peek inside the wardrobe
The current economic outlook predicts that nothing will improve in the short term, so I would expect “big ticket” sales to remain under increasing pressure. Consumer’s discretionary spending will be hit, as people tighten their belts. Today (Friday 1 December) Thomas Cook has announced that it will be closing 50 stores nationwide, just one week after it announced a 40% drop in UK revenues. I guess for a lot of people having a cheaper Christmas and a cheaper holiday next year will be the order of day.
Sadly next year could still be tough for retailers and the travel industry . . .