Paperchase’s pre-Valentine’s Day Massacre won’t be the last blood on the High Street

February 8, 2023

Those planning to buy a greetings card to give a loved one on February 14 may have fewer options following last week’s fall into administration of high street stationery chain Paperchase. Failure to find a buyer for the troubled business has seen supermarket giant Tesco acquire the brand and ‘intellectual property’, while 106 shops will close and hundreds of staff are set to lose their jobs.

Paperchase was no stranger to insolvency processes. In 2019, struggling with high operating costs, it entered into a Company Voluntary Arrangement, resulting in a 50% rent cut for three months. Suffering the effects of store closures during the Covid pandemic, in 2021 the company issued a notice to appoint administrators, hoping to buy it some breathing space. The business was acquired in a pre-pack by Permira Credit, before being sold again the following year to retail investor Steve Curtis.

Seasoned retail observers identify two key problems at Paperchase that are shared by other ‘niche’ consumer chains: rapid expansion of stores ahead of demand, and fierce competition from new entrants also able to offer fresh, funky stationery, yet at lower costs and prices. However, the entire retail sector has been undergoing major structural change since well before Covid closed stores for months and turned already thin margins into losses. Even greetings cards are available online to arrive at home or with the recipient the next day. Competition woes and issues of footfall are now compounded by soaring energy costs, wage demands and other elements of cost inflation.

The Centre for Retail Research isn’t hopeful. It expects up to another 18,000 UK shops to close this year – around 50 per day – after 17,000 closed in 2022, a five-year high beating even the peak of the Covid period. Interestingly, despite Creditors Voluntary Liquidations (CVLs) – when businesses reach the end of the road and are liquidated to pay debts – scaling new heights in recent years, many retail businesses that were able to enter administration as an alternative have bounced back. Examples include Bensons Beds, HMV, LK Bennett and Monsoon.

Retail has always been a particularly tough industry sector, requiring unique skills, specific experience and enormous vision. Operators, from owner-managed single store units to national chains, must develop creative and flexible strategies to protect themselves from seemingly endless volatility. In that way they might stand a chance of succeeding when trading environments become more benign. Retailers should, sooner rather than later, seek professional advice on tenancy and rent issues, store closures, stock control and working capital, technology and operating efficiencies, relationships with suppliers, and support with banking arrangements.

Ironically, February 14 is the last day that unspent Paperchase vouchers remain valid, so there is still to grab a romantic card.

The insolvency toolkit offers several options for breathing space to put retail businesses on a sounder footing. Managers wishing to explore these shouldn’t hesitate to get in touch with us at Buchler Phillips for a free initial consultation.

Written by Jo Milner, Managing Director at Buchler Phillips, a UK based independent boutique firm with an impeccable Mayfair heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.

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