What’s going on with retailing in Britain?

The closure of retail shops in our town and city centres across Britain is a common topic of conversation. The concern is that they are increasingly empty and poverty-stricken.

The general assumption is that the increase in online shopping, exacerbated by Covid, is to blame, but research reveals something more sinister going on, hidden from workers unless they delve deeply.

Chain stores such as Ted Baker, The Body Shop, Lloyds Pharmacy and Wilko are among the many outlets that have closed across the country in recent months. These follow the collapse of other well-known companies such as Debenhams and Topshop.

According to data from The Centre for Retail Research, 2022 was a particularly bad year for the retail sector – possibly the worst in 25 years. Over 17,000 stores closed, averaging nearly 50 a day, with over 150,000 jobs gone.

The sector continues to decline, losing almost 120,000 jobs in 2023. The union USDAW has been calling on the government to work with the union and employers to come up with an industry strategy to address issues such as rents, rates and taxation. The government is not listening.

Most analysts blame the high street decline on the rise of online shopping and “consumer behaviour”. In 2022 more than a quarter of retail sales in Britain were online – the highest rate for any western European country, and significantly higher than for the USA. Business rates for online retailers are much lower than those for traditional sellers.

But this analysis is far from the whole truth. Behind the job losses and store closures lies the dead hand of private equity (PE) “investment” (see Box).

Retail businesses provide cash flow, and often come with property assets, making them attractive to PE firms.

‘Retail businesses provide cash flow and often come with property assets, making them attractive to private equity…’

In 2018 Retail Dive, a US digital news and analysis company for retail executives, did an in-depth analysis of the impact of PE investment on the US retail industry from 2003. They found that PE firms had bought over 120 retail companies in that 15 year period, often via debt-fuelled buyouts. Of the ten largest PE buy-outs – including Staples, Toys R Us and Claire’s – half were bankrupt or in financial distress by 2018. Not a great surprise, since the researchers found that PE firms generally funded their purchases with debt.

According to market analysts Debtwire, between 2016 and 2017 equity made up less than 43 per cent of the price of PE buyouts of companies: the rest was largely funded by debt. PE firms have also owned Maplin, New Look, Poundland and HMV - companies that have either disappeared or been drastically “restructured” with store closures and job losses. These firms’ destructive – but legal, even promoted – methods are worth a closer look.

The Body Shop debacle

In Britain, German PE firm Aurelius Group bought The Body Shop in November 2023, finalising the deal on 1 January. Aurelius immediately sold most of The Body Shop’s European and Asian business, an estimated 14 per cent of the company’s global business, to a family office.

Then on 13 February, just weeks after it gained ownership, Aurelius put the UK Body Shop business in administration, closing more than 70 of the stores in Britain and making 489 people redundant. Because Aurelius had called the administrators in, it was not liable for redundancy payments. The administrators directed staff to the government’s Redundancy Payments Service.

The workers will only get the statutory minimum redundancy pay. British taxpayers will foot the bill for this.

‘Just weeks after gaining ownership, Aurelius put The Body Shop into administration…’

There are allegations that the administrators are investigating claims that millions of pounds were taken out of the company before it went into administration. In addition, The Body Shop took out a series of loans with Aurelius. According to company filings, these loans pledged valuable assets to Aurelius, such as property and intellectual property rights.

So Aurelius was both the company’s owner and its most significant creditor. If The Body Shop doesn’t survive administration, Aurelius will have first claim to those assets. If it does survive, Aurelius will be in prime position to buy back a slimmed down business shorn of its liabilities.

This has been a particularly brutal case, but not an isolated tale.

Another example is Lloyds Pharmacy, which went into liquidation in January. The company was bought by Aurelius in 2021 for £477 million when the chain employed more than 2,500 pharmacists at almost 1,300 stores. Between then and the start of this year, Aurelius sold off 90 per cent of the pharmacies before winding the company up, having saddled what remained with debts of over £293 million.

The big names fall

When Debenhams went into administration in December 2020, many assumed that covid lockdowns had accelerated its demise. But in reality, the company had never recovered from three years of ownership by a private equity consortium of Merrill Lynch, CVC Capital and TPG.

The consortium bought Debenhams in 2003 for £600 million and took £1.2 billion in dividends before selling it in 2006. When it bought Debenhams the company had debts of £100 million. When it sold Debenhams, the debts were over £1 billion.

The unearned dividends taken from the company were paid for by selling and then leasing back 23 stores on expensive rental arrangements, leaving new owners and managers with little room for manoeuvre to cope with the challenge of internet sales. Debenhams’ eventual collapse took the jobs of 12,000 workers.

There is no quick and easy way of killing off private equity dealing. It is just part and parcel of how capitalism and its pariah governments function, for all the politicians’ occasional squeaks about it in committees. All have to go.

• Related article: What is private equity?