As the official obituary page of UK business, Invisible Hand is doing a round up of all the British shops that have gone into administration since the crunch started biting. (Hey that’s quite poetic © Peter Ross 2009)

In Administration

Zavvi

MFI

Adams

Olan Mills

Passion for Perfume (me neither)

Waterford Wedgewood

Land of Leather

Under Threat

Blooming Marvellous

Mosaic (owner of Karen Millen, Oasis and Principle)

Next

Debenhams

Cutting Staff

M&S - 1,000

Merrill Lynch - 1,900

It’s not all bad news, these lucky companies are doing OK

Doing Well

Tesco

Iceland

Sainsbury

New Look - sales rose 2.8% over Christmas

The invisible Hand blog is rapidly becoming an obituary for failed UK companies. Part of me feels guilty for chronicling the demise of the British economy, as I think it is acts as a self fulfilling prophecy. The more people are bombarded with negative news, the less confidence they will have in the economy.

Economics is largely is based on psychology. Of course economists have come up with a vast amount of theories to explain how economies work but most have failed. Throughout the 20th century the UK has followed, Keynesianism, New classical economics, New Keynesian economics, Post-Keynesian economics amongst others. Each one working for a while but then failing in some way. There has been recession, crashes, mass unemployment, inflation, deflation, stagflation amongst others. Regardless of the policy a particular government these economic disasters still took place. It’s impossible to create a general rule for how the economy works: it is too large and dependent on too many factors. The simplest way to understand economics is basic human psychology which is why negative coverage may be very damaging indeed.

Today furniture chain Land of Leather has gone into administration, putting the jobs of its 850 staff into jeopardy. Land of Leather has been hit hard by the downturn in housing market. With less people moving house, the demand for new furniture has decreased. The downturn in the housing market has already claimed the scalps of MFI, The Pier, ScS Upholstery, Ilva and Floors 2 Go. Last week Sofa warehouse announced its attention to call in administrators.

Land of Leather has been in difficulty for some time. Athough the company is debt free, because of the lack of liquidity in the market, they were unable to secure funding to cover the losses it made in January  Like Woolworths, Land of Leather refused a buy out package last year in November. The plan was rejected because it was deemed ‘insufficient value to shareholders’.

Ironically, in August Woolworths rejected an offer by Baugar, the company behind Iceland that now owns 50 former Woolworths stores. In both cases, the major concern was for the shareholders’ return on their investments. By putting their own interests above that of the companies, these shareholders effectively doomed these companies to failure. It is a great example of cutting off your nose to spite your face.

As the company is debt free, there is some hope it may find a buyer. Here’s hoping, just so I can put some good news up here for once.

Guardian

Woolworths still limps on but its days are numbered. The Woolworths in Camden Town is still open but the shelves have been stripped bare. It looks like a Russian supermarket in the late 80’s. You can still grab some sweets from the Pick n’ Mix section which is fitting as for many the only point of Woolworths was its sweet isle. When the last Pick n’ Mix is sold then, Woolworths will truly be no more.

This is what happens when companies go into administration during a recession. There was neither the inclination or the money to save a shop as symbolic as Woolworths so it is bad news for Adams, Whittards and Zavvi which have all gone into administration in the last two weeks.

It is easy to understand why a company like Whittards and Adams are having problems. Whittards is a luxury tea retailer while Adams purely sells children’s clothes. Their core business is provided by other retailers. It is possible to buy luxury teas and coffees from super markets and department stores. There is little reason to make a separate visit to a specialist tea retailer when you can buy similar products when you do your weekly shop. The same applies for children’s clothes which can be bought in super markets or in cheap clothes retailers like TK Max or Primark. Most importantly during a recession people spend less on luxuries like luxury teas and children’s clothes.

Whereas Adams and Whittards are too specialised, Woolworths did have enough of a defined identity to keep people coming back. Woolworths sold products that any other high street shop did, but without the range of specialised retailers. Woolworths also could match its competitors on prices. A company like Argos is able to sell every product under the sun while at the same time offering its customers a huge number of items within each range. It is also really cheap. How could Woolworths possibly compete?

Zavvi is an interesting case. Theoretically a shop selling CDs, DVDs, game consoles, games and other home entertainment items should be doing really well. These are reasonably expensive must have items. Everyone, from every age and walk of life likes music, films and games.  Even during a recession, people still buy these items because they are more likely to stay at home to save money and so invest in their home entertainment. However the music and movie market has taken a hit in recent years because more and more people are getting such items online from companies such as Amazon and Play.com. These sites do not have the overheads of a high street retailer and so are able to pass on the costs to their customers. Plus they can sell items high street shops with limited space cannot afford to stock. Buying online is becoming more and more popular as the populace become more web-savvy. Many online retailers offer free delivery and are often able to deliver an item within 24 hours of its being ordered. Illegal downloads mean that many people have stopped buying music and films altogether. Both scenarios are serious threats to off-line home entertainment retailers like Zavvi.

The coming year will be a difficult time for many retailers. It seems as only those with the most robust business models will be able to weather the economic down turn. Companies in precarious situations like Adams, Whittards, Zavvi may follow the same undignified fate of Woolworths.

Woolworths has been a staple on the British high street for almost 100 years even though it started life as an American import. The first UK branch was opened in Liverpool in 1909. The main problem with Woolworths in recent years is that it lacked a specific brand identity: as a cut-price retailer it was undercut by the supermarkets and £1 shops and as a seller of CDs, DVDs, home wares and toys it was out performed by specialist retailers like HMV, Waterstones or Toy R Us. It became a jack of all trades and a master of none. The only reason people went to Woolworths was to nick pick n’ mix and buy really small cans of coke.

Typically Woolworths made 80% of its yearly profits in the run up to Christmas, now with the British economy in the doldrums, the high street is suffering. With Woolworths’ business model in such a precarious state, all it has taken is one bad year for it to go to the wall.

Woolworths might still prevail now it is in the hands of administrators. The BBC is interested in acquiring  Its DVD  and CD distribution business while Hilco a specialist restricting firm are looking at options for taking over the day to day management of the branches.

The failure of Woolworths may precipitate a price war as the administrators, desperate to claw back some money, sell off Woolworths’ stock in massively discounted sales.  This would force other retailers to reduce their prices which may affect their own profitability during the festive period. Instead of being an isolated event, the failure of Woolworths might have a domino effect on the British economy affecting jobs and businesses alike.