There was a time when ‘asset stripping’ was one of the best-known – and vilified – terms in the commercial lexicon. In this country, the likes of Slater Walker and Hanson raided declining manufacturing industries and turned big profits by slimming them down and selling off many of their best assets.
In America, the corporate raiders of the 1980s did much the same thing. It was never a popular business – the villainous Gordon Gekko in the film Wall Street was an asset stripper – but it was often very profitable.
In this decade the asset strippers are going to make a return – but it will be retailing they are tearing apart, not manufacturing. Just as factories were in deep decline two decades ago, so high-street shops are now.
But for the right sort of ruthless tycoon there will be a lot of money to be made, either by exploiting property assets or else by running businesses purely for cash.
The retailing industry is undergoing a huge structural shift, much as manufacturing did during the 1970s and 1980s, and it is only at the beginning of what will be a five- or ten-year process. The bulk of retailing is shifting online, or towards some mix of online and offline outlets.
There are other problems on top of that. Britain built too much new retail space during the debt bubble of the last decade, consumer spending is under pressure as wages stagnate, and the government has made the whole situation even worse by piling punitive taxes – in the form of business rates – onto shops. The net result? A lot of them are not going to survive.
It is hardly surprising that we are starting to see some corporate action. Morrisons is talking about selling off some of its properties to release cash after a poor set of trading results. Sports Direct is stalking Debenhams, another retailer who called Christmas wrong and suffered as a result. That is probably only the start.
A lot more high-street chains are going to be in trouble over the next couple of years, and there will be many more deals to be done.
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It is a mistake to think, however, that just because an industry is in decline – as traditional retailing certainly is – that no one can make money out of it. A few people will do very well out of the demise of the high street. They just need to come in with the same sort of attitude as the raiders and asset strippers who tore their way through declining manufacturing industries two decades ago.
Ignore talk of reviving the high street, or finding innovative ways of tempting shoppers into the stores. James Daunt is trying that at Waterstones but it is unlikely he will find a way of luring customers away from their Kindles and back into his stores. Neither will anyone else who tries to revive dying formats.
Instead, there are two main types of raider who will do well. The first will look for hidden assets. Plenty of old manufacturers were sitting on banks of land, or healthy overseas subsidiaries, that were undervalued because their parent company could not make money any more.
The asset strippers would come in, close down the main business, and sell off the land, and sometimes revive one or two units that still had some life left in them, and sell that at a profit as well. The likes of Slater Walker did that countless times, and made a lot of money in the process.
These days, it is retailers that are sitting on a lot of land. True, it may be retail space, and it may be hard to get permission to use it for other things. But it is not hard to believe that an enterprising company could not find some way of exploiting it. Much of it could be used for schools, or flats, or offices.
Britain has a growing population and a rising property market. If there is land available for development and it is not making any money as retail space, it is hard to believe that a way can’t be found to make it pay, even if it takes some imagination.
Likewise, there may be manufacturing, design, or distribution units that can be split out of retail chains and turned into profitable, stand-alone businesses, and then sold off.
The other technique is to run a retailer purely for cash. Once you accept that a company is doomed, and just decide to milk it for as much as you can before it closes down, it can often be surprisingly profitable. It is not hard to do that with a retailer.
Just stop refurbishing the stores, cut back on the cleaning and heating bills, fire half the staff, squeeze the suppliers to the bone, and start raising the prices steadily, and it will start to make a lot more money even if the turnover is declining.
In the medium-term, it will be a disaster. The customers will notice as the shops get worse and more expensive – and will go elsewhere. But that will take a while. In the short-term, you will do really well. And if the business has no long-term future anyway, it isn’t a bad strategy.
Much of the traditional high street may well be dying on its feet. But that does not mean there are not plenty of deals to be done in the next few years – or indeed that a few people won’t make a lot of money out of its demise.