The crisis at Poundland could trigger a domino effect across Britain’s high streets, an insolvency expert has warned.
The stricken discount retailer could enter administration within days after owner Gordon Brothers rejected a rescue bid from its management team, backed by Ireland-based Martin Property Group, which would have saved its nearly 12,000 staff and potentially also a wider supplier base of 18,000 people.
Some of those suppliers exist solely to support Poundland’s operations – meaning they would immediately go to the wall – while others depend on the retailer for the majority of their business.
Insolvency expert Molly Monks, of Parker Walsh, said: “Poundland’s crisis is a stark reminder that the consequences of a major retailer’s financial difficulties extend far beyond its own shop doors.
“While the immediate focus is understandably on the future of its stores and the thousands of people whose jobs could be affected, there is another group facing considerable uncertainty: the businesses that depend on Poundland for revenue.
“For many suppliers, a major retailer is not simply another customer. It can represent a significant proportion of their turnover, and they may already have invested heavily in producing, transporting and delivering goods.
“If payments are delayed or invoices remain unpaid, those businesses can quickly find themselves under pressure to meet their own commitments, including wages, rent and payments to other suppliers.
“This is where the consequences of a retailer’s financial distress can become much wider. A business that appears to be struggling in isolation can create a ripple effect across its supply chain, putting smaller companies at risk and potentially triggering further financial difficulties.
“For some suppliers, losing a major customer or being left with unpaid invoices could be extremely difficult to absorb.”
The sticking point for the failed MBO was a demand for full repayment of a £30 million shareholder loan with any buyer of the business. However a new bidder has reportedly offered to pay off £12.5m of this debt, with the rest deferred.
US-based investment group Gordon Brothers said Poundland, which it bought for just £1 last summer from Pepco Group, has faced years of instability and “remains challenged and vulnerable”.
Poundland filed a notice to appoint administrators last Thursday, which gave it 10 days of breathing space with creditors to explore a rescue deal.
This week Business Secretary Jonathan Reynolds held talks with Gordon Brothers and urged it to protect the livelihoods of Poundland’s workforce.
“The uncertainty also matters for the high street,” continued Monks. “Poundland has an established presence in towns and shopping centres across the UK, and its stores provide affordable shopping options for consumers.
“If closures follow, the impact could be felt by employees, shoppers, landlords and neighbouring businesses that rely on the footfall a major retailer brings.
“The key question is whether a rescue can deliver a sustainable business, rather than simply postpone the problem. Any buyer would need to consider the retailer’s operating costs, store portfolio, supplier relationships and ability to generate sufficient cash to support ongoing trading.
“A rescue could offer an opportunity to preserve jobs and protect suppliers, but a restructuring or break-up could also leave difficult decisions ahead. The priority should be understanding the underlying financial position and acting early, because the longer uncertainty continues, the harder it can become for businesses across the supply chain to plan and protect themselves.”
Poundstretcher owner Fortress is also said to be interested in acquiring 250 shops, while other interested parties include Iceland, Lidl, CDS Superstores – owner of Wilko and The Range – and B&M.
Gordon Brothers said: “Our intent throughout the comprehensive sale process has been to protect as many jobs as possible and preserve value in order to deliver the best available outcome for all the people, creditors and local communities who care about this business as much as we do.”
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