04 July 2011

Coming back from 10 days holiday (Sardinia; thanks for asking) it was hard to escape the ‘meltdown in the high street’ headlines. In the time I’d been away Habitat, Jane Norman and TJ Hughes had gone into administration, Thorntons announced it was closing 180 stores and the crisis at HMV seemed to have worsened.

According to an article in today’s Independent of Sunday, there are currently 15,462 shops earmarked for closure.

So, not surprisingly, some of the coffee-break chat at this week’s Auto Retail Network Web Workshop was about whether auto retailing faces the same fate. Is it meltdown time for franchised dealerships? It’s a fair question.

As the same Independent article (you can read it here – http://ind.pn/iqTTxk) points out, good retailers don’t become bad retailers overnight and this is not just about recession. The failures have been about the retailers that have not got their act together despite warning signs.

Many of these failing businesses have already been asset-stripped and are carrying huge amounts of debt. Another factor is undoubtedly rapidly rising property rents. Experienced operators are saying the cost of rents and rates is just too high to make opening a shop in some towns viable.

So, what are the prospects for a £1.5m dealership with gleaming showroom, high-tech service bays, £500,000 worth of stock and 20 staff?

In recent years we have seen two broad business models develop in this industry. The traditional model has the dealership sitting on a freehold property, probably bought some time ago, and operating both as a property company and an auto retailer; the newer model has the property sold off, the cash either reinvested or pocketed and the retailer operating as a short-term tenant.

By coincidence, also this week, this latter model was the one rejected by the Lookers board and its majority shareholder. Jack Petchey and his consortium saw value in selling off the property; Tony Bramall sees a stable, successful business based on a solid property portfolio.

Given the news from the high street, I think I’d back Mr Bramall on this one.

Rupert Saunders

Remember, if you’ve got a story for us – or just some idle gossip – email: rupert@auto-retail.com
 

Tags: administration, economy, finance, High St