The Scottish department store group Watt Brothers has collapsed into administration with the immediate loss of nearly 230 jobs and about 80 more at risk.
All 11 of the group’s stores were closed on Friday, but the flagship outlet on Glasgow’s Sauchiehall Street will open on 19 October for a clearance sale as administrators from KPMG seek a potential buyer.
Administrators said 229 of the group’s 306 employees had been made redundant with immediate effect.
The fourth-generation family-owned chain was founded when farmer’s son Allan Watt set up a drapery shop in Glasgow in the late 1800s. It moved into its current flagship store in 1915 and had six stores by the 1960s before a more recent expansion spurt from 2004.
What’s the problem?
Physical retailers have been hit by a combination of changing habits, unseasonably warm weather, rising costs and broader economic problems. In 2018 Toys R Us, Maplin and Poundworld disappeared as a result.
In terms of habits, shoppers are switching to buying online. The likes of Amazon have an unfair advantage because they have a lower business rate bill, which holds down costs and enables online retailers to woo shoppers with low prices. Business rates are taxes, based on the value of commercial property, that are imposed on traditional retailers with physical stores.
At the same time, there is a move away from buying ‘stuff’ as more people live in smaller homes and rent rather than buy. Those pressures have come just as rising labour and product costs, partly fuelled by Brexit, have coincided with economic and political uncertainty that has dampened consumer confidence.
What help do retailers need?
Retailers with a high-street presence want the government to change business rates. They also want more political certainty as the potential for a no deal Brexit means some are not only incurring additional costs for stockpiling goods but are unsure about the impact of tariffs after October 2019. Retailers also want more investment in town centres to help them adapt to changing trends, as well as a cut to high parking charges which they say put off shoppers.
What is the government doing?
In the October 2018 budget the government announced some relief on business rates for independent shopkeepers. It has also set up a £675m ‘future high streets’ fund under which local councils can bid for up to £25m towards regeneration projects such as refurbishing local historic buildings and improving transport links. The fund will also pay for the creation of a high street taskforce to provide expertise and hands-on support to local areas.
What is the outlook in 2019?
Some retailers could go under. Weakened by a difficult Christmas – which accounts for the entire annual profits of many retailers, and with further Brexit wobbles to come – retailers are facing a tough 2019. Another rise in the national minimum wage in April and the falling value of the pound against the dollar, which is used to buy goods in the far east, have also added to costs and hit profits.
Sales for the group rose 14% last year to £24m but KPMG said Watt Brothers had continued to make losses in 2018 and 2019 after falling £680,641 into the red in 2017.
Blair Nimmo, joint administrator and UK head of restructuring at KPMG, said: “Despite the director’s tireless efforts to increase margins, cut costs and recapitalise the business, Watt Brothers continued to incur trading losses as a result of the well-publicised challenges being experienced across the retail sector.”
“Ultimately this has led to the unfortunate demise of a well-known and highly regarded business.”
Nimmo urged anyone interested in the Watt Brothers’ assets to get in touch as soon as possible.
Watt Brothers’ demise comes after a difficult few years for department stores, which have faced tough competition from the rise of online shopping and increased costs, particularly on business rates.
Businesses have found it difficult to adapt to rapid changes in shopping habits by moving to more suitable locations or negotiating rent cuts as their large outlets are usually saddled with long leases.
The latest government data on retail spending revealed a further slump in department store sales last month, which offset a modest rise in clothing and supermarket food purchases.
John Stevenson, a retail analyst at Peel Hunt, said department stores were losing out to online retailers who now sell the beauty and clothing brands that stores once had exclusive access to.
“There was a time when department stores were the height of excitement, where you would go for the day with health and beauty, a cafe and clothing. They were a footfall magnet. But when they started to lose that exclusivity and the way we shop changed they don’t stand up so well.”
As times have changed, chains such as House of Fraser and Debenhams have been struggling for survival amid waves of discounting that have hit profits at more stable groups, including John Lewis.
Watt Brothers store closures are the latest amid a flood of consolidation across the sector.
House of Fraser went into administration in August last year and has closed seven of its 59 sites since it was rescued by Mike Ashley’s Sports Direct group. A further store in Exeter is set to close next month and several more are expected to close after Christmas, as the most recent figures showed the chain losing more than £1m a week.