The UK business world woke up this morning to the news that Carpetright, one of the country’s largest retailers for floor coverings, was on the brink of collapse.
More than 1,800 jobs and 272 stores are at risk after the company filed a notice of intention to go into administration at the High Court today with the advisory firm PricewaterhouseCoopers (PwC) lined up.
PwC has been working with the company to try and find a buyer to secure more cash which would allow it to keep trading.
In the meantime, customers have been expressing their shock after the company announced today it was no longer able to process any refunds – leaving one customer in the lurch for £1,500.
But carpet industry experts have now explained the uphill struggle Carpetright is facing, with the popularity of hard floors, the rise in online shopping and the cost of living crisis, all hitting the industry hard.
However the primary problem facing the company has been slowing customer demand across the furniture and homeware industry.
Although it now sells not only flooring, but mattresses, curtains and blinds, garden furniture and artificial grass, shoppers are still delaying making big purchases and are instead prioritising essential bills.
John Cullen, partner and insolvency expert at business advisory firm Menzies, told the BBC: ‘The problems that Carpetright are facing show just how difficult trading conditions in retail are at present.’
Demand has also slowed due to the shift from bricks-and-mortar shops to online. Carpetright has been hit especially hard in this aspect due to the large amount of floor space their sites require.
Jasvir Jootla, restructuring and insolvency partner at Gowling WLG told CityAM: ‘This is another high profile casualty in the retail sector, highlighting the continued cash pressures retailers face, as well as a decline in sales with consumers looking to cut back discretionary spend.
‘It further demonstrates that even well-established brands are not immune to the current challenging environment.
‘Being one of the UK’s largest floor covering retailers, we would expect that the business, in a reshaped form, can be rescued through an insolvency transaction, which will ultimately help to save jobs.’
The company has been no stranger to difficult times, having gone through a form of insolvency proceedings six years ago to cut costs.
At the time, it was forced to close 81 stores after reporting a full-year loss of over £70m.
Another problem for the company has been new competitors on the market.
Carpetright’s main competitor, floorings retailer Tapi, was created by Martin Harris 10 years ago.
But it was his father, Lord Harris of Peckham, who founded Carpetright when he opened a single shop in east London in 1988.
Lord Harris, now 81, sold all his shares in Carpetright in 2014, and now an investor and adviser in Tapi.
Since it started business operations, Tapi has grown quickly and now has more than 150 stores, alongside a website and delivery service.
Many Tapi stores were opened in close proximity to Carpetright’s best-performing locations, and the up and comer poached many of the chain’s employees, according to Retail Gazette.
Carpetright even blamed Tapi’s aggressive expansion for putting ‘significant pressure on the group’s best-performing sites’ in 2018.
Now that Carpetright is in administration, Tapi has expressed an initial interest in Carpetright’s stores and supplier base if they were able to do a deal, according to The Times.
Carpetright had been hoping for a quick sale due to cashflow pressures but there are fears Tapi would not be able to buy it quickly as it would need to go through competition clearance.
Although no formal bids have yet been made, the sale process is likely to be completed through a pre-pack administration, which could result in hundreds of jobs being lost and stores closed.
A sale could involve a buyer stepping in to save all, or just parts of the company.
Meanwhile Carpetright was also targeted by a ‘software attack’ in April which increased financial pressures, The Sun reported.
One insolvency expert described the attack as the ‘straw that broke the camel’s back’.
Hackers targeted the company HQ in Purfleet, Essex, sending malware to gain unauthorised access.
Carpetright’s network was taken offline due to the cyber attack but bosses insisted that the virus was isolated before any data was swiped.
Staff and hundreds of customers were affected by the malicious virus with employees unable to access their payroll information.
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A source said at the time: ‘Some staff networks were taken down including the portals that workers use to book time off and look at payslips.
‘It happened abruptly and was worrying because customers couldn’t get through to helplines.
‘Everything at HQ was taken offline as that was the best way to stop the attack spreading to customer data.’
Another problem facing Carpetright is the general economics of the UK.
Rebecca Dacre, partner at Mazars, told CityAM: ‘We are unlikely to see the retail sector trading comfortably until interest rates start to fall.
‘Despite inflationary pressures easing, high interest rates and low consumer spending continue to persist.
‘The rise in the National Living Wage is the largest on record and some face a sharp rise in business rates from April.
‘One of the issues that chains like Carpetright will face is who will want to rent their excess space.’
After Carpetright was founded in 1988, it enjoyed years of success, listing on the London Stock Exchange in June 1993.
It was taken off the stock market in 2019 by its biggest investor, Meditor, which had taken on almost 30 per cent of its shares and more than £40 million of its debts.
Kevin Barrett, CEO of Nestware Holdings, which is owned by Meditor, said: ‘We remain focussed on securing external investment to ensure as few customers and colleagues are impacted as possible.
‘They are our main priority and we are taking all appropriate action to make sure they are informed and supported through this process.
‘We have begun promising conversations with interested parties that are moving in the right direction, encouraging us that Carpetright has a viable future.’