What went wrong with Wilko revealed as stricken high street retailer starts closing stores
RETAIL experts have revealed what went wrong with Wilko as the troubled retailer begins closing stores.
The chain went bust back in August and has now announced the first raft of shops which are set to shut their doors.
Wilko’s collapse is a “massive blow” to the retail sector and staff, but some experts say “the clock has been ticking” for a while.
“To a large extent, it has been inevitable, given the structural and trading weaknesses of the business,” explained Richard Hyman, partner at retail consultancy TPC.
Wilko had been struggling, closing 15 sites last year and borrowing £40million from Hilco in 2022.
The company underwent staff restructuring changes too, as well as considering a company voluntary arrangement, a form of insolvency, earlier this year.
But even though it was suffering significant cash flow issues, shareholders still reportedly opted to pay themselves £77million in dividends before going under.
Richard said this was “probably not the wisest move” and sent a negative message to suppliers.
Then on August 10, despite efforts to save the struggling discounter, financial backing couldn’t be found and Wilko went into administration, putting 400 stores and 12,500 jobs on the line.
Since then B&M has agreed to buy up to 51 stores, although they’re expected to be rebranded.
So far, administrators at PwC have announced 52 closures and their locations, resulting in more than 1,500 jobs being axed.
Part of the reason for Wilko’s demise is that it didn’t have what it takes to keep up with the competition, according to Dr Amna Khan.
Dr Khan, a senior lecturer in consumer behaviour and retailing at Manchester Metropolitan University, said: “We have witnessed the growth of B&M bargains, Poundland, who have been more aggressive in trying to capture consumer spend, through offering a wider variety and range of products, but also operating in locations that have better footfall and lower operating costs.”
Wilko, like many other high street retailers, is said to have seen a big drop in footfall and has “stopped performing to its full potential”.
The chain has 400 stores across the UK, with most of them on the high street and in traditional town centres.
The high street has suffered in recent years with the immersion of retail parks and larger shops.
Many discounters have spread themselves into these kinds of sites, outside of towns.
It means that shoppers are more likely to buy more and bigger items – something Wilko has not been able to take advantage of.
Richard said: “The structural issues are that most of its stores are in high streets and much of what it sells is much better suited to retail park locations with lots of nearby car parking.
“Many products like paint, wallpaper, furnishings, are simply too bulky to take home on the bus or carry to a far-flung car park.”
Richards says that this “mismatch” between products and store locations has stopped Wilko from benefiting from the rise of discount stores.
“This weakness has also helped B&M and Home Bargains, the two strongest value retailers in the sector, to mop up sales that Wilko might otherwise have enjoyed,” he added.
Wilko’s site locations also mean that the chain has been forking out for high rents at a time of decreased footfall and profits.
Another issue that Wilko couldn’t live up to the examples set by its competitors is its lack of focus online, Dr Khan said.
She explained: “Wilko haven’t focused as much on the online offer, whether that is selling online, or using social media to create hype around their products.
“The competitors have engaged customers in social media campaigns and marketing.”
The overall loss of profits has also led to Wilko being unable to remain competitive, according to Richard
He said: “Increasing pressure on trading performance has led to credit insurers withdrawing their support, and this in turn has put further pressure on Wilko’s finances.”
Why did Wilko go into administration?
Wilko was founded as a hardware shop in Leicester in 1930, but quickly expanded across the UK and it employed 12,500 people up until its collapse.
It launched a turnaround plan earlier this year after its sales and shopper footfall came under pressure as consumer budgets were hammered by the rising cost of living.
Wilko said it saw “real progress” against many areas in its plan and made significant cost savings but was unable to improve its finances quickly enough to avoid insolvency.
Administrators are still seeking out potential buyers for the remainder of the chain’s store estate and possibly its brand, although more closures are likely.
Chains have been feeling the pinch since the pandemic while shoppers are cutting back on spending due to soaring inflation.
High energy costs and a shift to online shopping after the pandemic are also taking a toll and many brick and mortar shops have struggled to keep the lights on.
If you want to know how your local high street is affected, you can check out our handy guide to all the shops closing down in September.
Meanwhile, here is the full list of Wilko stores set to close next week.
And for a complete history of the brand and its founder, see our story.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
You can also join our new Sun Money Facebook group to share stories and tips and engage with the consumer team and other group members.