Wilko is the latest shop to be edged out by competition but it doesn't have to mean the end for the budget retailer

By selling pick ‘n’ mix, stationery, garden tools and bird boxes, Wilko has spent the last 90 years^[1] transforming from a one-store business into one of the UK’s major budget retail players. It now has around 400 stores^[2], but it has also become the latest high street shop to face serious financial troubles.The decline of Wilko has been gradual and predicted^[3]. It reported losses over the last four years^[4], and closed 15 stores^[5] last year after attempts to restructure the business.

More changes to its business will now be needed, including further store closures^[6] and job losses as the company files for administration^[7]. This doesn’t mean failure - yet.

Rather, this procedure will see Wilko’s financial future examined by insolvency specialists from accountancy firms who will assess if the company can be rescued as a going concern (PwC is reported to have been lined up for the job^[8] after helping Wilko try to find a buyer in recent months).

It could reportedly take £70 million^[9] to rescue the company. Potential buyers include rival discount retailers and private equity firms that specialise in turning around struggling businesses.

The problems the chain has faced have not been unique to Wilko. When Woolworths^[10] entered administration in 2008, all 807 of its stores were eventually closed, resulting in 27,000 job losses. Like Wilko, Woolworths was a fixture on the high street for almost 100 years, but it fell victim to a significant spike in competition fuelled by other budget retailers – including Wilko. Now, it looks like Wilko is set to suffer the same fate.

This is a form of “creative destruction^[11]” – when companies are naturally replaced by new, more efficient competitors over time. Woolworths replaced the need to shop at multiple smaller businesses, and then Wilko swooped in to take Woolworths’ core market share. Now, if it fails, Wilko could be replaced by other more streamlined businesses.

Just as the success of Wilko played its part in the demise of Woolworths, other budget retailers have expanded into Wilko’s core territory. Wilko’s decline has been more gradual, but The Range, Home Bargains, Poundland and B&M, as well as traditional supermarkets such as Tesco and Asda, have continued to increase their presence on Wilko’s patch. In particular, this includes DIY supplies, bathroom products and household wares.

Combined with the continued growth of internet companies such as Amazon, this competition has left Wilko without a unique selling point. Also, rising prices such as the UK has seen over the past year and a half forces people to cut spending but also undermines customer loyalty^[12] as people shop around for the best bargains.

Retail headwinds

Of course, retailers have faced multiple challenges in recent years. The coronavirus pandemic^[13] certainly did not help the retail sector, but some businesses were more adversely affected than others. Wilko, as a traditional store that relied on foot traffic, has previously said it experienced a 40% fall^[14] in visitor numbers after the March 2020 lockdown.

Government financial assistance^[15], which included business rates relief, tax holidays, and restrictions on landlord’s ability to call rents, provided some temporary relief. But once this assistance ended, Wilko was exposed to the post-pandemic world, which has seen its fair share of retail casualties since the start of the pandemic.

The demise of Debenhams^[16] shocked the high street in December 2020, as did the failure of the Arcadia Group^[17] (which included major high street brands like Topshop, Topman, Miss Selfridge, Dorothy Perkins, Evans and Burton) the month before.

In general, companies that have failed to address the cost of living crisis by cutting prices or offering better deals when compared to their competitors are struggling to survive. We saw this with the collapse of online furniture retailer Made.com last year. High street and online powerhouse Next bought the brand and website^[18] in November 2022.

Read more: How Made.com went from a pandemic-era business superstar to a failed company in just 18 months^[19]

Rethinking the future

Wilko undoubtedly faces a dire situation, but unlike recent retail failures, it does have a future – it could just be in a different form. Sometimes brands are bought, which can cover intellectual property such as website domain and brand name, but not the stores or employees, as Next did with Made.com or Asos did with Topshop^[20].

In other cases, the struggling company might reinvent itself, although this requires extensive restructuring, and may only prolong the misery. The latter was the fate of former high-street giants BHS^[21] and Debenhams^[22], and more recently the greeting cards retailer Clintons^[23], who now plans to shut around 20% of its shops in an effort to stay in business.

In the case of Wilko, unfortunately this situation is likely to lead to the closure of many stores, and a reduction in staff and the range of products it sells. But it could also lead to new initiatives such as developing its online presence^[24] further and expanding its delivery options.

Change always risks alienating certain loyal customers, but in economic times like these, brands like Wilko need to put survival above all else.

References

1. ^{^} the last 90 years (www.wilko.com)
2. ^{^} around 400 stores (uk.style.yahoo.com)
3. ^{^} predicted (www.ft.com)
4. ^{^} losses over the last four years (find-and-update.company-information.service.gov.uk)
5. ^{^} 15 stores (www.theguardian.com)
6. ^{^} further store closures (www.independent.co.uk)
7. ^{^} administration (www.insolvencydirect.bis.gov.uk)
8. ^{^} lined up for the job (www.theguardian.com)
9. ^{^} £70 million (www.thetimes.co.uk)
10. ^{^} Woolworths (www.theguardian.com)
11. ^{^} creative destruction (www.e-elgar.com)
12. ^{^} customer loyalty (www.forbes.com)
13. ^{^} coronavirus pandemic (www.ons.gov.uk)
14. ^{^} 40% fall (www.theguardian.com)
15. ^{^} financial assistance (www.gov.uk)
16. ^{^} Debenhams (www.theguardian.com)
17. ^{^} Arcadia Group (www.bbc.co.uk)
18. ^{^} brand and website (www.reuters.com)
19. ^{^} How Made.com went from a pandemic-era business superstar to a failed company in just 18 months (theconversation.com)
20. ^{^} Asos did with Topshop (www.ft.com)
21. ^{^} BHS (www.theguardian.com)
22. ^{^} Debenhams (www.thisismoney.co.uk)
23. ^{^} Clintons (www.bbc.co.uk)
24. ^{^} developing its online presence (www.retailgazette.co.uk)