Mon, 23rd February 2009

Comment: What does Pre-pack administration mean to a retail supplier?

While the prevalence of Pre-packs has increased, those businesses supplying the sectors at the sharp end of this recession need to be mindful of their customer's doomsday strategies.

By Richard Rhodes

Having been in and around retail systems for twenty five years I have seen, and been on, the roller coaster of economic turmoil a few times, but this time there are new challenges. I have watched uncomfortably in recent weeks as companies such as Stylo, Officers Club and Adams throw themselves on to the recession's sword. Though, we no longer lament their passing for too long in an age of pre-pack' administration; "our store is dead." "Long live the store"! These 3 are just a sample of the many retail companies choosing the new improved administrative option over the past 12 months; but they illustrate a new age perfectly.

During the recessions of the 80's and 90's businesses cut their coat according to their cloth in an attempt to balance the demands of the time. Suppliers were partners to share the situation with, scaling down, restructuring agreements and debts where possible. The high street brands of the 00's are encouraged, by the mechanisms of pre-pack administration, to keep the information between the boardroom and the insolvency practitioner so they can disappear one day and reborn the next. They return without the burden of debts, under-performing sites or excess staff. Nottingham University tell us that 59% of the time the management team who presided over a fall from grace pick up the reigns of the cleansed company once more. Some Offer selected, or required, suppliers of the old company debt repayment schemes outside of the administrative process as long as they support the reborn company from the beginning as if nothing has happened.

For a supplier, the choices are more testing than ever before. I find myself allied with farmers who sell their goods at one price only receive a 10% rebate demand from their largest customer 60 days later. Do you lose possibly good business for the future or stand by principles and pursue solid customers? Sadly our sector is riddled with trap doors some of the brands in the above situation would have been described twelve months ago as firm blue chip concerns. The enterprise act of 2002, which brought us Pre-pack failed to replicate all aspects of the US Chapter 11 process resulting in a system which directs businesses toward turnaround specialists. If it had included super priority funding, allowing an administrator to keep a company trading while restructuring occurred visibly. Priority expenses to address adoption of staff contracts, rent issues, trading losses and title clauses on stock. Without these aspects in the British version a supplier is excluded from a process until the B of the bust rings through their email, phone or letter box.

The defenders of pre-pack administration always point the reduction in job losses within the business concerned. I would be in agreement if I was not running a company which was next in the food chain. My company offering on-site hardware support or those delivering the other IT services, supplying stock, merchandising and all the other aspect that make retail work on a day to day basis. While the retail jobs are saved today possibly more jobs are lost within the supply chain as a whole. Robbing Peter to pay Paul means that the constriction and job losses are spread amongst a wide range of sectors. These are the shoppers that would be on the high street tomorrow and the day after. It means that those working in retail are spooked off the high street and those tied into the supply chain are also.

Toward resolution I am with Lord Oakshott who last week in the lords accused management teams and Britain's leading accountancy firms of "collusion in Prepacks". He demanded "safeguards against conflicts of interest and unfair treatment of suppliers, creditors, and prospective buyers of a business"

Richard Rhodes of Retail Response Hardware Support Specialists