Budget retailer Wilko has called in administrators, putting more than 12,000 jobs and 400 stores at risk after it failed to agree an 11th hour rescue deal.
The family-owned household and garden products retailer is expected to close a large number of outlets on UK high streets, often big stores.
Mark Jackson, the chief executive, said in a statement: “We left no stone unturned when it came to preserving this incredible business but must concede that with regret, we’ve no choice but to take the difficult decision to enter into administration.
“We’ve all fought hard to keep this incredible business intact but must concede that time has run out and now, we must do what’s best to preserve as many jobs as possible, for as long as is possible, by working with our appointed administrators.”
Administrators from PwC are set to be formally appointed this afternoon, and are expected to continue to seek a buyer for at least part of the business, which was founded in 1930. CBRE has been providing real estate advice.
The chain is the largest retailer to collapse into administration since the convenience-store business McColl’s, which employed about 16,000 people, a year ago. That chain was rescued by supermarket Morrisons.
Wilko has been on a major cost-cutting exercise in recent months, agreeing a £40 million funding package in January with turnaround business Hilco UK. It posted a £36.8 million loss in its recent full-year results thanks to increasingly difficult trading conditions.
The retailer had been increasingly expected to proceed with a compulsory voluntary arrangement across its estate, with the Sunday Times first reporting that this could see it seeking rent reductions at as many as 240 of its 400 stores but no store closures. It now appears that, whatever route it takes, there will be significant store closures. Many are expecting a prepack administration involving the shuttering of many of the stores.
In January Canadian asset manager Brookfield agreed to buy the headlease on the budget retailer's 1.1 million-square-foot distribution hub in Worksop in Nottinghamshire from third-party logistics specialist DHL for £88 million or a 5.75% yield.
The transaction was structured as a sale-and-leaseback transaction with DHL only two months after Wilko agreed a £48 million, 15-year sale-and-leaseback with the logistics company on the hub, with DHL retaining the headlease at the time. That deal enabled Wilko to pay off its revolving credit facility.
CVAs have been little used in the last two years as market conditions have improved for retailers. They are legally binding agreements with a company's creditors to allow a proportion of its debts to be paid back over time and need 75% of the creditors, by value, to support the proposal.
Rising energy costs, inflation and interest rates have all been expected to lead to distress in retail, potentially prompting a return of CVAs. Experts suggest that if they do re-emerge, they will be very different to the formula used in the past.
Jonathan de Mello, founder and CEO of retail consultant JDM Retail says store closures and job losses are inevitable and partly blamed underinvestment in the stores: "Current cost of living issues are certainly a major factor in the issues they now face – with a concurrent reduction in discretionary spend, and ever-rising supply chain and wage costs. However, Wilko have also suffered from poor decision making by management over the years, and chronic under-investment in their physical store network. Competition has also played a big part – with the likes of Home Bargains, B&M, The Range and others all taking significant market share from them."
De Mello adds that whilst the new team they have put in place together with Hilco "seem competent, they haven’t had enough time or money to turn the business round".
"Any potential buyer would not want to take on the significant debt Wilko has, and inject yet more capital into the business at this time. There will be suitors for the business for sure – but they will have been waiting for the company to go into administration, before seeking to acquire the best parts of the business as it stands – without the debt.
"No buyers will want to take on 400 plus stores either – many of which will deliver little contribution to overall profitability. A significantly smaller estate is required if the brand does indeed continue to trade. This would of course mean the sad loss of thousands of jobs, even in the best case scenario for the business."