Jessops – is administration a euphemism for obliteration?

Sadly, yesterday another retailer went into administration, this time Jessops, the high street camera chain. For the time being it continues to trade but the jobs of its 2000 employees in 200 stores are under threat. Surprisingly, Christmas can be a bad time for retailers – rents are due on Christmas Day and if the expected bumper sales don’t materialise, the money may not be there to pay them.

Obviously it’s not going to get any easier for ‘bricks and mortar’ store chains with the continuing increase in online sales, but there’s a more fundamental problem – apart from the massive supermarket and department store groups, all the power lies with the Landlords. Did you know that each retailer has to pay a quarter’s rent in advance? (So those December rents are paying for the quiet times of late January and February, when there are few shoppers around filling the tills.) Or that most shops are still on institutional 25 year leases? There’s a dangerous inflexibility in the system when changing retail and behavioural patterns actually demand more flexibility.

Retailers need to have meaningful discussions with their landlords before insolvency, but with institutional landlords often being the largest UK pension funds, they’re loath to negotiate any sort of rent reduction with their tenant and have to write down the book value of their portfolio, regardless of the circumstances and the seemingly commonsense approach that something is better than nothing. Rent reviews even in this day and age still tend to be ‘upward only’ for the whole duration of the lease – no matter if you’re in a local high street and suddenly there’s an enormous new retail park on the outskirts of the town. That’s why you see so many empty shops on the high street – often a landlord would rather keep them empty than let in someone on a lesser rent and thereby lower the ‘market’ rent for an area or high street. And don’t be fooled that the situation for the high street is improving – much as I like what Mary Portas says and does, her work isn’t addressing these fundamental economic concerns. If anything, town centres are even more endangered – in the second half of 2012 there was more out-of-town development going on than at any other time in history, and we all know the attitude of our Coalition partners towards planning control.

Administration should be an absolute last resort, as the only winners from the process are usually the big accountancy firms who make large sums from their fees in running the businesses during the administration period. The staff lose their jobs, the shareholders lose money and it costs the government in terms of unpaid tax revenues and benefit payments. The process should genuinely be an opportunity for a business to restructure itself, as with the US Chapter 11, so it can come back leaner and meaner with fewer outlets but the majority of its employees still in work. However, this seldom happens – after several months, the accountants cash in, the stores quietly close and the employees join the dole queue.

After the last big administration, that of Comet in the run-up to Christmas, our own Vince Cable suggested we need to review the whole insolvency process. He’s totally right, but we need to go a whole lot further and look at the landlord/tenant relationship and its failures, and the implications of those failures on our withering high streets. There is no point in hanging on for unrealistic ‘market’ rents if all we have left are supermarkets, charity stores and coffee shops. The already under-pressure pension funds could become another house of cards. I seriously hope for the best for everyone at Jessops, but I fear for the worst.

* Mark Blackburn worked in retail for over twenty years and is currently a member of the Social Liberal Forum Council.

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20 Comments

  • Perhaps if going to the high street wasnt the shopping experience of groundhog day in most towns there would be hope for local shops – but as long as out of town developments and distribution depots continue to benefit from low rents compared to the high street this sad spiral will continue.

    And how deliciously ironic to run this article above an ad reading ‘Help LibDemVoice by buying from Amazon.’

  • Mark Blackburn 11th Jan '13 - 5:55pm

    @peebee Quite. Haven’t even talked about the lack of a level playing field where UK retailers pay corporation tax and Amazon doesn’t. LDV take note! And a few minutes ago it was confirmed that all the Jessops stores are closing for good.

  • Keith Browning 11th Jan '13 - 7:30pm

    I have been monitoring the costs of renting one of the city centre shops in Guildford, over the past months, optimistically hoping that rents might drop and the council possibly offer a business rate reduction incentive. There are plenty of small, empty, available shops, all ideal to start a new, small business.

    Then you look at costs involved, before a customer has even walked through the front door.

    Generally the rent is £30-40,000 a year, plus business rates of £15-25,000. We are talking about £50,000 plus, before shop fitting, heating, lighting and ‘elfin safety’ equipment. Then there are wages, for staff, and perhaps you might want some stock, for whatever business it might be. Shock horror, you might even want to advertise.

    Then just perhaps you would like to make a little profit for yourself – just to live off – an income so you can meet your own costs of housing, food and transport.

    Overheads of £2000 plus a week. No wonder they all stay empty for months and in a part of the country that, so far, has escaped the worst of the cuts.

    Just an example of one of many – and the cheapest I could find. What could you sell in 18 square metres of shop space that would make it worthwhile to give this shop a go at those costs?

    http://www.mseproperty.co.uk/MSE/files/bd/bd56c19c-f1d7-4be2-978b-74d226a75479.pdf

  • >And how deliciously ironic to run this article above an ad reading ‘Help LibDemVoice by buying from Amazon.’

    Yes I’ve noted that these particular ad’s seemed to have appeared more frequently after Kirsten de Keyser’s “Avoid the Tax Avoiders!” opinion piece ( http://www.libdemvoice.org/opinion-avoid-the-tax-avoiders-32076.html ) …

  • I know it is no comfort, but it does seem that all those predictions about the rise of Internet shopping leading to the demise of the High St. are beginning to come true, only it isn’t happening as fast as the trend setting pundits predicted.

    What I’m finding surprising is, given the number of large retail chains that have collapsed and until comparatively recently were to found on retail parks, a developer and a neighbouring district council are still wanting to build a £50m out of town “retail park” on a greenfield/brownfield site (undeveloped land but as it has been a country park it is regarded as brownfield) and believe that it will have no impact on the existing neighbouring out-of-town developments, which have vacant units …

  • The real mystery is how Jessops lasted so long.

    When every phone includes a camera, Jessops ceases to be a mass market proposition and with Amazon, eBay, Argos and every supermarket selling cameras at rock bottom prices, that remaining market getsore and more fragmented.

    Insolvency is fundamentally a scam run by the accountancy profession to asset strip thf corpse of failed companies; they charge upfront fees to try and avoid administration, further fees during administration, and when (seldom if) administration fails, further fees during the winding up process

    Theyre not called “the f***ing fat fees” of insolvency for nothing!

  • I doubt that grasping landlords are the root of Jessops’ downfall. They’re usually in relatively cheap secondary locations. Nor is it an online shopping problem. It’s technology!

    Their core product is simply ceasing to be relevant to the mass market. I am not a “serious” photographer but I take 1000s of pictures. I always carried a camera in my handbag until a couple of years ago when I got a phone with good enough capability for my needs.

    So you have a retail sector that is increasingly the preserve of top end hobbyists (akin to serious hi-fi) and professionals (whom they don’t serve) or the price-conscious entry level consumer who can’t afford a decent phone.

    Jessops are not specialist enough for the nerds and there’s no strong business model in a shrinking bottom end. Just call this inevitable.

  • Stephen Donnelly 12th Jan '13 - 10:47am

    Mark I am not clear what you think can be done. This business has failed because customers want to shop elsewhere and the government should not be considering any form of intervention to save it. if there is a possibility of salvaging some part of the business, that is best accomplished by the administrator. Using a device such as the US chapter 11 rule would just frustrate that process, protect the existing managers, and in general will reduces the willingness of suppliers to offer credit.

    There are problems with the insolvency process that I hope Vince Cable will look at. The government currently guarantees redundancy payments and then takes a place in the queue as an unsecured creditor. In some circumstances this acts as an incentive to close the business down, and in extreme cases makes it illegal for directors to consider solutions that would preserve employment. This demonstrates the problems with government interventions in the market place, however well meaning, they often solve one problem, and create another.

  • Ian Sanderson 12th Jan '13 - 11:05am

    I’m really sad about this, as I have used Jessops since they were one shop in Leicester with a (pre-internet) mail order operation. More recently, I have used their shop in Romford Town Centre and their well-organised web site.
    Not long ago, there were three specialist photographic shops in Romford Town Centre, but the independent one has gone and Dixons shut suddenly without warning.
    Hopefully, something can be saved, perhaps – like Morgans – as a web shop.
    Oh, and I don’t find camera phones anywhere near flexible enough for the sort of photos I take regularly – often merely notes. My Digital SLR, from Jessops, is used much more

  • Ian Sanderson 12th Jan '13 - 11:12am

    Vince Cable is quite right about the insolvency process. In other countries, including Germany and the USA, shutting a business overnight is not allowed. Systems such as Chapter 11 in the USA allow a more considered winding down and/or restructuring.
    Here the tendency is prioritising liquidation of assets to satisfy the most pressing creditors – the taxman, the banks, and the accountancy firm in charge. Small creditors and preservation of assets or strucures are lower priority.

  • >Here the tendency is prioritising liquidation of assets to satisfy the most pressing creditors – the taxman, the banks, and the accountancy firm in charge.

    I think you’ll find that the taxman comes a long way down the list. since 2003 HMRC has been classified as an “unsecured creditor” – hence providing a motivation for the government to promote the new “employee shareholder no redundancy rights” form of employment contract, as it does mean that whilst the government may have to write off any tax due they won’t also be having to pay out redundancy… Remember with Comet we know that redundancy alone cost the government £20m, we can only guess at the owed tax (Corporation, VAT, PAYE & NI) that had to be written off.

    From my experience the real order payment is determined by the board as it is very rare for a well run company to suddenly go into liquidation, hence the board and major investors generally have some warning and hence, as we saw in the case of Comet, can make arrangements that benefit certain groups BEFORE the company formally enters insolvency.

  • It is a concern that the disappearance of Jessops and Comet reduces the competition with the consequent inflation in prices. Also shoppers often need to look before they buy so Internet buying is not always the answer.

  • @ Ian Sanderson

    I think you have confused Administration and Liquidation, this reflects the difference in types of bankrupcy in the US. Administration prioritises looking for the best return on assets, when the firm has a profitable business model but is being dragged under by huge debt then the administrator normally can rescue the business. Selling a going concern is far more profitable than a fire sale of assets.

    I agree with Ann that Jessops problem was one of a viable business model. In the “old” days they did film developing and offered a good coverage of the camera market. As film developing disappeared then the lower cheaper cameras were made redundent by phones. Once you throw in the internet offering the choice for the more expensive purcases with greater info. Basically Jessops had its market ripped from under it.

    @ Keith Browning

    I agree the levels of rent and business rates are excessive but Jessops would not have survived even with out that added pressure. However the replacement shops may be prevented from starting and thriving due to it so it is more of a block to the next stage in the creative destruction cycle. That should scare us much more than the losses of existing businesses.

  • Stephen Donnelly 13th Jan '13 - 8:11am

    @Ian. Shutting a business overnight is not allowed in this country either. An application to appoint an administrator needs to be made to the court and must be approved by a vote of shareholders. A creditors meeting must be called, at which the conduct of the directors can be challenged, and a different administrator can be appointed. Voting at a creditors meeting is by value. It seems fair that those owed the most money have the biggest say. It is illegal to give a preference to creditors just before administration, though the ‘professionals’ do always get paid. The most important feature of our system is the that existing management and shareholder lose out.

    There is some scope to tweak the rules to prefer the continuation rather than the liquidation of the business, to look at pre-packs, and fees, but on the whole, the system works well. Chapter 11 protects management and shareholders rather than employees.

  • IMHO Jessops wasnt killed so much by cameraphones, as by a combination of digital photographers printing less photos, and supermarkets and pharmacies offering print services. Internet shopping also made it cheaper to buy lenses online. Ultimately supermarkets will kill off most specialist shops.

  • Peter Watson 18th Jan '13 - 9:51pm

    @alistair “Ultimately supermarkets will kill off most specialist shops.”
    For me, the saddest thing about this is that supermarkets will do so by taking the ‘un-specialist’ part of the business, leaving specialist shops unable to make a profit from the rest. Another example is newsagents – by selling lottery tickets and the most popular magazines and papers (I think the rules do not allow price competition here, but supermarkets are offering convenience), I foresee the “local” branches of the big supermarkets killing off newsagents who offer a wider range, and thereby reducing consumer choice.

  • It’s the ‘shoppers’ who kill off the small shops…..

    A few years ago the specialist butcher I used announced he was closing. Immediately locals started a “Save our Family Butcher” petition. The next time I visited the shop I asked how the petition was progressing; his answer, “If half the people who signed the petition actually shopped here, I wouldn’t be closing”…

  • Dave Page 19th Jan ’13 – 1:09pm……..annie, this goes two ways. My local shops are great, but they’re not open at times I can reach them. 9-5 on weekdays while I’m at work, and only open until noon on Saturday (often with early closing). I’m sure it’d be worth the local traders association agreeing to one “late opening” night a week for all the local shops and advertising it – then commuters like me would have a chance!……..

    If that’s the way your local shops operate then today’s economic climate (ice age) then they will follow “Neanderthal” into extinction.
    I had the same experience with a local shop in Lincolnshire many years ago. The ‘off license’ was owned by a local man who opened when he wanted. He was losing money and sold it to a young couple (active Libs by coincidence) who expanded their stock and ‘opened all hours’ . They quickly developed a customer base and thrived; the previous owner told me, “It’s a gold-mine, I should never have sold it”; I said, “They get out what they put in; under you, we couldn’t rely on the shop”…
    If your local traders’ association can’t learn that lesson?????

  • This discussion has veered away from the critical point which is that there is not a ‘free market’ in commercial property. The Tories bleat on about the wonders of the free market but only do anything to facilitate it when it enables their supporters to make money. Mary Portas can come up with one piddling scheme after another – one of our local towns was recently awarded £10,000 to improve shopping facilities with a great fanfare in the press – but unless overheads are reduced to levels which enable new entrepreneurs to come and test whether their is a market for their products and their business model then our town centres are doomed.

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