Thousands of jobs at risk as Maplin and Toys R Us fall into administration - as it happened

Graeme Wearden

from on 2018-02-28 17:48 (#3GZ46)

UK retail gloom as two chains employing 5,500 people call in the administrators

BREAKING: Maplin calls in administrators
Weak sterling and low consumer confidence blamed
2,500 jobs at risk

Earlier:

Toys R Us has fallen into administration
Attempts to find a buyer seem to have failed
Stores will keep trading 'until further notice'
3,000 staff face uncertainty

5.48pm GMT

Time to wrap up, before wrapping up to face the snow outside....

Toys R Us and Maplin have entered administration on the same day, putting more than 5,000 jobs at risk at two of the UK's best-known retailers.

Administrator Moorfields said it was managing an "orderly wind-down" of Toys R Us, which has about 3,000 staff, while PwC has been appointed to oversee the administration of Maplin, which employs 2,500 people.

5.44pm GMT

If you work for Toys R Us or Maplin and have been affected you can tell us your experience and share your views using our encrypted form.

5.37pm GMT

This piece may be useful for customers:

5.37pm GMT

Investors who loaned money to Toys R Us face significant losses.

As Alan Higgins, the CIO of Cootts, points out, Toys R Us bonds were trading close to their face value until last summer - when the US parent sought bankruptcy protection.

Spare a thought (III) for the bond holders, this time Toys R Us, just 8 months before bond holders get all their money back then this happens : pic.twitter.com/pZfdGy072o

5.23pm GMT

Over in the City of London, the FTSE 100 index of top shares has closed down 50 points or 0.7% at 7231.

Firstly, the squeeze on the consumer thanks to elevated levels of inflation, combined with wage declines in real term, which is causing consumers to rein in their spending on damaging level. And secondly, this reining back in spending couldn't have come at a worst time in the high street's history, as consumer habits change towards online shopping, favouring the likes of Amazon for their fast delivery and wider selection and more competitive pricing.

"This brutal combination is hitting the high street hard. Stores are struggling at best, but if in the case of Toys R' US there is excessive additional burdens, then survival is questionable.

4.59pm GMT

Heads-up: That 'open as usual' sign outside Toys R Us in Manchester isn't as new as I thought, sorry....

4.21pm GMT

There's a chilly corner of intu Merry Hill shopping centre in Dudley, near Birmingham, that captures today's grim retail news.

There, a Maplin and a Toys R Us store sit, side by side - with a sign in one of the windows confirming that the administrators are now in charge.

4.03pm GMT

Over in Manchester, my colleague Frances Perraudin has been speaking to Maplin customers about its fall into administration this morning (reminder, she visited Toys R Us earlier)

"The only reason I came in today is its proximity to the university and because I needed something immediately, otherwise I would have gone online myself."

"Sometimes you just want to be given advice, which these guys are very well trained for.

Without that you are suddenly on your own."

"What they sell is quality stuff, but they are very expensive.

"You can buy a printer for 20 or 30 from Tesco and Asda these days. I would usually look on ebay and at the big supermarkets for things like that."

3.26pm GMT

Update: I incorrectly wrote earlier that the Toys R Us branch in Manchester has hung an 'open as usual' sign outside. A reader has now got in touch, to kindly explain that the sign has been there for a while (!). Apologies...

3.16pm GMT

Toy sellers have been hit by a triple-whammy of problems recently, which all contributed to Toys R Us's predicament.

"Sales in the UK toy market fell by 2.8% to 3.4bn in 2017, according to the British Toy and Hobby Association (BTHA) and the NPD Group. This has been driven by a number of reasons; there has been a shift to screen games as opposed to physical toys.

Licenses have been under-performing for a while, and there is the ever-growing concern of counterfeit toys. As with all retailers, toy shops have also been impacted by the shift to online sales. The impact of Brexit on the strength of the Sterling (particularly last year), together with inflationary pressures such as the increase in minimum wage, has also made a significant dent into their margins."

2.55pm GMT

The collapse of Toys R Us and Maplin into administration is going to ripple through the UK retail sector - and hurt companies in their supply chain.

Helena Kanczula, Corporate Tax Director at accountancy firm Blick Rothenberg, explains that some suppliers will be left with unpaid bills.

There is an order of priority regarding who ranks above who when a company goes into liquidation and trade creditors would be below secured creditors such as banks and the company's employees. There may therefore be limited funds available to distribute to suppliers.

2.28pm GMT

Research from YouGov has shown that the UK public lost confidence in Toys R Us after its US parent limped into bankruptcy protection last autumn.

Amelia Brophy, Head of Data Products UK at YouGov, explains:

"Certainly, in the UK at least, people recognised the struggles the brand was experiencing. Its Buzz score (whether you have something positive or negative about a brand) had lingered around the +2 mark prior to September 2017. Since that time, its score has plummeted to a low point of -25.

The knock-on effect of this is that the public opinion deteriorated. Its Impression score, which had stood around the +16 mark, dropped as low as -1.

2.12pm GMT

The British arm of Toys R US has been struggling since its US parent company filed for bankruptcy protection last September.

"On the face of it one might say it is a surprise that the administration of the UK subsidiary of Toy R Us did not come sooner given the insolvency of its parent in the US some months ago and the well known difficulties of high street retailers in the face of online rivals.

One question that may need proper investigation is whether the board acted properly in deferring administration in the face of market pressures (and ongoing losses) in the hope of securing a sale. Given that there is apparently a deficit to both the Revenue and Pension Protection Fund the outcome for trade creditors cannot be good and they may wish a proper investigation to be undertaken by the administrators to determine whether there is culpability here".

1.48pm GMT

Toys R Us nearly collapsed last December, before the company agreed to inject an extra 9m into its pension fund.

But today's administration means Britain's Pension Protection Fund takes over the scheme, which currently has a 37m black hole.

"Members of the company's pension schemes need not panic. When schemes collapse they fall into the hands of the PPF, who have the responsibility for paying workers' pensions. Those who already reached the scheme's normal pension age will receive 100% of their pension. For those who haven't reached the normal pension age, the PPF will pay 90% of what their pension is worth, up to a cap. This cap is currently just over 38,500 per year for someone retiring at 65, so it only affects the highest earners.

Members of the scheme can still take early retirement and a tax-free cash lump sum. In fact, the way PPF calculates these can sometimes be more generous than a typical scheme.

1.08pm GMT

The problems at Toys R Us show that the era of retail parks may be over.

"With ToysRUs and Maplin going into administration today, the constant change in the retail sector is now being felt in retail parks as much as the high street. These familiar brands have struggled to keep pace with the growing preference for online retail. But it is not just a matter of more people buying online, it is also what these retailers offered as their customer experience.

Visiting a toystore with children is generally a fraught experience for most adults. Combined with the fact that a planned visit to a toystore will often require a degree of secrecy from the very same children, the failure of Toys R Us becomes much clearer.

12.42pm GMT

"I've just compared one item they've got over there to what's on ebay and it's 40 there and you can get it for 15 online."

"I'm not saying it's a good thing, because it's never a good thing when a big company goes out of business because loads of people lose their jobs, but it might regenerate a local toy shop mentality and help local businesses."

"You'd come in and it was like Hamley's. You'd have staff demonstrating the toys. They'd have stuff set up that you could play with and there would be toys everywhere that you could use before you bought them. It's not like that now. It's quite sad really."

12.35pm GMT

Labour MP Peter Kyle says Maplin's administration shows the wider impact of the weak pound on UK firms who import goods.

Far from ushering in a bright economic future, the threat of Brexit has put jobs and investment at risk.

.@peterkyle - Maplin shows "the threat of Brexit has put jobs and investment at risk" https://t.co/LCzr04bpCh pic.twitter.com/NKMfFxtsMe

12.23pm GMT

Adam Deacock, a Barrister at Radcliffe Chambers, fears it won't be possible to save all Toys R Us and Maplin's stores.

He explains:

The administrators' statutory task is to rescue a company and its business as a going concern if this is possible. In practical terms this is highly unlikely, as a buyer will be unlikely to wish to take over their debts and liabilities or all of their stores, so the administrators' next task is to attempt to get the most they can for the assets.

The hope for the companies' 5,500 employees is that a buyer can be found for the businesses who will take over as many as possible of the stores, their employees and their pensions in one go, but the administrators' concern is simply to produce the best result for creditors.

"As taxpayers we should all be concerned as the immediate cause of Toys R Us' administration appears to be its unpaid VAT bill of 15m and other unpaid tax debts can be expected.

12.15pm GMT

Another interesting tweet from Patrick O'Brien, suggesting that Amazon will profit from Maplin's problems:

If Maplin stores close its going to be Amazon that benefits the most pic.twitter.com/1NB51sigQe

11.56am GMT

Patrick O'Brien of UK Research Director at Global Data Retail reckons that Smyths, Ireland's biggest toy retailer, was at least partly responsible for Toys R Us's demise.

E-commerce may have destroyed the 'everything under one roof' USP of Toys R Us, but in the UK, it was Smyths, not Amazon that caused the most damage pic.twitter.com/j6c8iVdnEe

11.47am GMT

Pat Lynes, business transformation expert and founder of Sullivan & Stanley, fears that more retailers will follow Maplin and Toys R US.

Lynes pins the blame on outdated management who haven't adjusted to today's business conditions:

Toys R Us and Maplin facing collapse is sadly not surprising. They haven't re-engineered their operating model to focus on digital platforms and the customer experience. A lot of executives of these older corporations are sitting within organisational structures that were fit for the nineties and maybe the noughties, but aren't fit for today's rapid-pace, changing world.

Without the ability to adapt quickly, sales will slide. It's the same Blockbuster story repeating - how many others will be next?

11.40am GMT

Another example of why high street stores such as Maplin will be missed.

This is super sad. Growing up as a nerdy kid, Maplin was my happy place, the staff there helped me with so many school science projects. https://t.co/o3ssh4Lnkn

11.28am GMT

PwC have confirmed that they've taken control of Maplin, and are looking for a buyer for some, or all, of the company.

They also say that Maplin was hurt by the fall in sterling - which slumped against rival currencies after the Brexit vote in June 2016.

"The challenging conditions in the UK retail sector are well documented. Like many other retailers, Maplin has been hit hard by a slowdown in consumer spending and more expensive imports as the pound has weakened.

"Our initial focus as administrators will be to engage with parties who may be interested in acquiring all or part of the company. We will continue to trade the business as normal whilst a buyer is sought.

11.26am GMT

Dom Tribe, retail sector specialist at supply chain firm, Vendigital, says Toys R Us failed to keep pace with changing shopping habits, including internet retail.

Despite losing significant market share to competitors such as Amazon and Argos, Toys R Us failed to implement an effective E-commerce model with expedited shipping options and also continued to rely on its large warehouses. Opened in the 1980s and 90s, these have proven highly costly to run, with difficulties around managing stock levels, and have been outperformed by its new smaller stores.

Toys R Us' relationships with key suppliers also hit the headlines over the last year, with the chain demanding long payment terms and exclusivity on certain ranges despite no longer being the key player in the market.

11.22am GMT

Guardian columnist Gaby Hinsliff has written a good thread about why the collapse of toy stores matters:

If Amazon kills off the likes of ToysRUs, that's got real implications for the way kids consume. (NB; this will be a short thread but still boring for non-parents)

That thing of letting your kids loose in a physical shop & seeing what they're drawn to, which is invariably not the (educational) stuff you wanted to buy for them? That's dying out.

So toys will sell increasingly on hype - ads, or stuff like fidget spinners that go viral - not on picking stuff up & seeing how you could play with it. Less chance to see that plastic tat looks less appealing in real life than on telly.

Poncey boutique toy shops selling adorable overpriced wooden toys that parents like & children don't will survive. Ditto The Christmas Circling Of Things In The Argos Catalogue. But a consumer skill gets lost I think. (end of boring thread)

11.18am GMT

City analyst Neil Wilson of ETX Capital says retailers are suffering from "structural game-changers and a softening in consumer confidence", which can be fatal for firms who haven't adjusted.

"Toys R Us has officially entered administration, with stores to remain open for the time being. The company failed to adapt and was stuck with a large portfolio of large warehouse shops. No experience for customers, no compelling online presence. A 15m VAT bill did for Toys R Us in the end after another poor Christmas, but it was a systemic failure to move with the changes in the retail sector that really did for it.

Maplin has also gone into administration in what's now a pretty torrid day for UK retail. In both cases the Amazon effect is all too clear to see, but there is more to it than that - there are retailers out there who are adapting and prospering.

Mothercare shares drop 12% as Toys R Us U.K. enters administration pic.twitter.com/iEqo0BDlzr

11.11am GMT

Maplin, like Toys R Us, has struggled in the face of online retailers who were able to undercut its prices.

But if the company does disappear from the high street, shoppers may struggle to lay their hands on a particular cable, battery or peripheral at short notice:

The second order consequences of Maplin going will be profound: Every event that requires AV or IT capabilities will no longer have somewhere to buy adapters and cables in an emergency.

Maplin has gone under. A sad day for engineers.

10.55am GMT

Rebecca Long-Bailey, Labour's Shadow Business Secretary, is urging the government to help Maplin and Toys R Us's employees:

"It's devastating that over 5,500 High Street jobs risk being lost. This latest shock in the retail sector continues a worrying trend for our shopping streets and centres.

"The Government must urgently meet with both the unions and the companies to ensure that these jobs are safeguarded.

10.44am GMT

BREAKING: Electrical goods chain Maplin has also fallen into administration, in an increasingly dark morning for UK retail.

"I can confirm this morning that it has not been possible to secure a solvent sale of the business and as a result we now have no alternative but to enter into an administration process. During this process Maplin will continue to trade and remains open for business.

The business has worked hard over recent months to mitigate a combination of impacts from sterling devaluation post Brexit, a weak consumer environment and the withdrawal of credit insurance. This necessitated an intensive search for new capital that in current market conditions has proved impossible to raise. These macro factors have been the principal challenge not the Maplin brand or its market differentiation.

10.39am GMT

A whopping VAT tax bill helped to push Toys R Us over the edge.

The company owed 15m, and a disappointing Christmas trading performance left it without enough funds to pay - triggering its fall into administration.

10.22am GMT

Time for some nostalgia with Geoffrey the Giraffe, who starred in Toys R Us's iconic 'Magical Place' advert back in 1989:

10.18am GMT

Here's Rob Davies's breaking news story on Toys R Us:

10.13am GMT

Toys R Us staff discovered earlier this morning that their employer has fallen into administration.

Moorfield's partner Simon Thomas, who is now running Toys R Us, says:

"We have informed employees about the process this morning and will continue to keep them updated on developments. We are grateful for the commitment and hard work of employees as the business continues to trade."

10.10am GMT

Hannah Maundrell, Editor in Chief of money.co.uk, has some advice for Toys R Us customers and staff, following today's news.

"It's undoubtedly distressing news for employees of Toys 'R' Us especially because their fates have been uncertain for so long. Unfortunately they aren't the only retailer that has been struggling.

"Anyone who is worried about the future of their job should prepare themselves now. Check what redundancy rights you have and dig out any income or mortgage protection policies you hold just in case.

10.07am GMT

Richard Lim, chief executive of Retail Economics, says Toys R Us is another victim of the "seismic structural changes" hitting the UK high streets (such as rising operating costs and the threat from online retailers).

He adds:

"Put simply, the retailer was too slow to embrace omnichannel, were burdened with too many stores and failed to deliver a retail 'experience' good enough to stand out from their competitors."

10.06am GMT

Toys R Us's administrators haven't given up hopes of finding a buyer, for at least some of its 100+ outlets.

In the meantime, existing stock will probably be offered at a sharp discount:

Toys R Us has gone into administration after it wasn't possible to sell it as a going concern. Moorfields Advisory Ltd have been appointed administrators. All 100 UK stores will continue trading for now & lots of the stock will be discounted.

From Toys R Us administrators Moorfields: "We will make every effort to sell all or part of the business. The newer, smaller, more interactive stores in the portfolio have been out-performing the warehouse-style stores"

9.59am GMT

Toys R Us customers are being urged to cash in any vouchers and gift cards ASAP, following its collapse into administration this morning.

Toys R Us details: All stores will trade until further notice, customers should use gift cards/vouchers asap, administrators will run orderly wind down of UK business with closing down sales. @BBCNews @BBCBusiness pic.twitter.com/ozYxHLSkfc

Executives had been battling to raise cash to pay a tax liability that fell due this week, but the efforts collapsed after a number of private equity funds and restructuring specialists walked away.

Insolvency specialists at Moorfields have begun the process of closing its British operations, which employ nearly 3,000 people and has an estimated funding shortfall of at least 25m in its pension scheme.

.@ToysRUs has entered administration after months of battling to stay afloat. This follows Warren Evans, East and Multiyork - demonstrating the tough UK retail climate in 2018 and the need to stay relevant against online. https://t.co/hG9ih9B0W5

9.51am GMT

NEWSFLASH: Retailer Toys R Us has fallen into administration, putting around 3,000 jobs at risk.

Press Association has the details:

"All stores remain open until further notice and stock will be subject to clearance and special promotions.

"We're encouraging customers to redeem their gift cards and vouchers as soon as possible.

9.39am GMT

Asia-Pacific markets have closed lower, with Hong Kong's index down 2%, China off nearly 0.9% and Australia losing 0.7%.

APAC Closing Prices:#ASX 6016 -0.68%#NIKKEI 22068.24 -1.44%#HSI 30844.72 -1.36%#HSHARES 12382.08 -2.09%#CSI300 4023.57 -0.87%

9.24am GMT

London-focused estate agent Foxtons has blamed a plunge in profits on Brexit uncertainty and stamp duty changes that have driven sales in the capital to near record lows.

9.17am GMT

UK broadcaster ITV has slumped to the bottom of the FTSE 100 leaderboard, after reporting a 10% drop in earnings.

Statutory pre-tax profits fell to 500m last year, from 553m in 2016, highlighting the tough market for advertising.

We have a solid foundation to build on, and a strong balance sheet and healthy cash flows gives ITV the flexibility to make the right strategic decisions for the long term future of ITV in an increasingly competitive environment whilst still delivering sustainable returns to shareholders.

ITV shares -6% to 162p as it cancels special dividend. Co. in good shape though with new CEO Carolyn McCall (formerly Easyjet) discussing a refresh of the brand. Liberum speculating an acquisition in sight, possibly Scottish TV but that maybe premature for her to be considering

9.04am GMT

The prospect of several US interest rate rises this year has also hit American government bonds.

As the price of US Treasuries has fallen, the yield (or interest rate) on the bond has risen. If borrowing costs are indeed going up, then investors want a higher return on their money.

US/euro zone 2-year yield spread 280 bps, widest since euro's launch in 1999 as markets price in further Fed rate hikes. But dollar not getting much traction because $ hedging costs are soaring. Good piece via @saikysays @abhinavvr https://t.co/gZ8T6UnMzK pic.twitter.com/3cIp22vGYY

8.27am GMT

European stock markets are all falling in early trading, as investors react to last night's testimony from Fed chair Jerome Powell.

The main indices are all down around 0.5% - a modest move, but one that highlights the worries about US interest rates.

Due to Powell's strong outlook on the US economy, he considers it necessary to continue gradually increasing interest rates in order to prevent the US economy from overheating.

On his hawkish tone, when asked the million-dollar question about 3 hikes or 4, Powell was quick to point out the improvements in the economy and his optimism that inflation will reach the bank's 2% target, in what can only be described as a hawkish response, which to many signalled 4 hikes could be on the cards in 2018. Powell's comments unleashed a wave of anxiety among equity traders, who rushed to sell out of holdings.

8.17am GMT

Vive la France!

8.12am GMT

With all this talk about interest rate rises, it's worth remembering that America doesn't really have an inflation problem right now....

Fed Chairs & Inflation: pic.twitter.com/gDehd5nzjS

8.11am GMT

Stock markets across Asia have all fallen today, after Fed chair Jerome Powell's hawkish comments reignited interest rate hike fears.

The Japanese and Hong Kong indices are leading the selloff, down 1,5% each. Here's the damage:

It is becoming increasingly clear that global stocks still remain highly sensitive to the prospects of rising inflation and interest rate fears. With Powell's testimony fuelling market speculation of higher US interest rates this year, stock markets remain exposed to downside risks as equity bears lurk in the background.

7.59am GMT

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

A hawkish Jay Powell indicated US interest rates set to continue to rise in his first public outing as Federal Reserve Chair, prompting many to expect four rate hikes this year rather than three.

London stocks to ease lower at the open, matching UK temperatures. New Fed chief Powell repeated a view of gradual rate increases and the DJI lost 300pts over the session. Nikkei -1.4% too, US 10yr yield 2.90%. $ firmer across the board , 1.39 vs .

It's Brexit's big reckoning in Brussels today. All you need to know in this morning's @ftbrussels briefing https://t.co/iRAYENCT09 pic.twitter.com/5ZgSDXiHnV

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