Wilko officially entered administration today, jeopardising 12,000 positions. We examine the challenges the value retailer faced and explores its potential for recovery.
Throughout the last year, the company grappled with financial constraints and challenges in product availability, leading numerous consumers to turn away from the brand.
Lately, the store’s proprietors were exploring opportunities to offload a majority share in an effort to safeguard the brand’s longevity.
Despite a “noteworthy degree of interest,” as stated by Wilko CEO Mark Jackson, the company couldn’t finalize a deal swiftly enough to provide the urgent funds required.
But what was the turning point for Wilko, a brand cherished by a multitude of customers?
Falling behind the value competition
Wilko has been navigating an intensely competitive landscape, with discount competitors like B&M, Poundland, and Home Bargains expanding swiftly and capturing its market presence.
Patrick O’Brien, the retail research director at GlobalData, suggests that these rivals have “significantly weakened Wilko’s competitive standing by offering more competitive prices,” leading to sustained challenges for the company.
Wilko’s retail sales were larger than B&M’s a decade ago, now they are a 1/3 of its value competitor. Also fallen below Poundland, Home Bargains, and The Range pic.twitter.com/syO4dL5Wv8
— Patrick O’Brien (@pat_gdretail) August 3, 2023
Wilko has witnessed sales drops in its past four fiscal years, with a decrease of 18.6% in revenue from 2017/18 to 2021/22.
The company reported a £35.9m deficit in its most recent fiscal year, exceeding its operating gains from the prior four years.
Matt Walton, the senior data analyst at GlobalData, points out that the retailer is trapped between challenges related to both price and design.
“They’ve been outperformed in terms of pricing by brands like B&M, Home Bargains, and The Range, and when it comes to design, they struggle to match the likes of Dunelm or Ikea.”
From 2015 onwards, B&M, Home Bargains, and The Range — all in a phase of store growth — have surpassed Wilko in non-food market dominance.
Furthermore, during this timeframe, Wilko stands out as the only retailer among these not to have increased its market share, Walton notes.
Retail expert Richard Hyman concurs, saying, “Wilko represents a series of lost chances, and it must be deeply frustrating for the founding family to see the heights B&M and Home Bargains have reached.”
Hyman contends that there are core issues hindering Wilko’s progress. Among them is its choice of store location.
“Wilko primarily operates on the high street, and that’s been a misstep. A brand like Wilko doesn’t need high street presence. It’s more of a targeted shopping destination,” he articulates.
Charles Allen, a retail analyst with Bloomberg Intelligence, echoes this sentiment: “B&M has transitioned many of its stores to retail parks, which offer more convenience to many shoppers, particularly when purchasing larger items.
“While a significant number of Wilko stores remain in classic town centers or nearby shopping malls, such spots have lost their appeal as other businesses have shuttered or shifted to retail parks.”
Hyman posits that Wilko’s store sizes are excessive, and their high street locations inherently mean higher rent costs compared to those in retail parks.
Additionally, the retail expert notes an overly extensive product range in their stores.
“B&M and Home Bargains prioritize curated selections, zeroing in on fast-selling home goods. Their inventory doesn’t come close to the extent of DIY products that Wilko offers,” he remarks.
“Wilko holds onto an abundance of slow-selling items in areas where it doesn’t have a strong brand presence. The retailer should streamline its offerings to ensure quicker stock rotation. In the retail world, holding onto inventory for extended periods is detrimental – and that’s precisely Wilko’s predicament.”
It’s worth noting that the company has already initiated steps to trim down its categories, having phased out toys just the previous year.
The pandemic and cash crunch
The pandemic undeniably affected Wilko, with O’Brien noting the company “didn’t bounce back,” highlighting that after lockdown restrictions lifted, the business grappled with severe financial constraints that top leadership couldn’t mitigate.
Hyman observes that the pandemic might have “masked underlying issues and hid intrinsic vulnerabilities in several firms.”
“As governmental aid recedes, as landlords press for due rents, and as standard business dealings resume, these vulnerabilities are slowly coming to light.”
The strain on cash flow became apparent the previous year, prompting the retailer to enact measures to conserve it.
“There wasn’t an excess of available funds to genuinely reinvest to maintain business momentum,” says Patrick O’Brien. In the run-up to the festive season last year, the company postponed payments to suppliers and sought more flexible rental terms with landlords. Yet, the situation intensified when credit insurers Allianz Trade and Atradius withdrew their coverage in October.
Ever since, Wilko has faced tough times, with numerous suppliers requiring immediate payment for goods, a challenging feat for a retailer already grappling with financial constraints. This resulted in inconsistent stock availability throughout its stores over the past year.
While the retailer did receive a boost upon securing £40m from restructuring expert Hilco the previous year, it was insufficient to bring significant change to the business. This situation left the newly appointed CEO, Mark Jackson, who assumed leadership towards the end of the last year, with limited maneuverability.
“They lacked the necessary funds to genuinely propel the business forward,” O’Brien points out.
What next for Wilko?
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.