Monday, 11 February 2008

Another one bites the dust

This week the news has arrived that another (this time a lesser known name) has bitten the dust. Elvi had 28 of its own stores and a larger number of concessions in well-known department stores; it specialised in fashion in larger sizes for women.

So, why is this noteworthy, hasn't the phenomena of closing High Street stores been mentioned on this blog very recently? Lisa Berwin has reported on the closure in 'Retail Week', a journal much favoured by Welbeck, and in her piece she cites that there had been a management buy-out, that a venture capitalist bought into the business in October 2006 and left just a few weeks ago. She comments on the likelihood that declining consumer confidence in the High Street was a major contributor to falling revenues; this associated with rising costs and ... well we can guess the rest.

This blog is an unmitigated supporter of small businesses in retail, and it will endeavour to draw lessons from things that go bang in the High Street, if only to act as a warning to others who might avoid such an eventuality; however, it is really quite sad to reflect on the losses that these headlines briefly touch upon - there is the undoubted grief to the management who will have been suddenly very exposed when the capital investors withdrew; there is the major calamity for the staff whose jobs will probably now be lost - at a time of increasing uncertainty; there are the minor shareholders, whose investment has evaporated; even , to a much lesser degree, there are the store directors who host the concessions who will now have a hole in their offer.

What can be drawn from all this? The usual warnings about maintaining cash-flows - keeping revenues up, and maintain costs within an affordable level as determined by those revenues. What about the role of the investment vehicles? Can we blame them for pulling out to protect their capital reserves - probably not; do they provide a service - on balance, they probably do - without these sorts of investment vehicles the small businesses of today would never stand a chance to become the larger companies of tomorrow in the rapidly moving environment of retailing in the UK and globally.

Should there be some questions asked in this case to determine whether the investors acted responsibly in this particular case - actually I think it should, and it should occur whenever venture capital or other significant investor becomes involved in any business. In the same way as banks and others lending to the public need to be more careful about lending, and the public about borrowing; so to do capital investment vehicles need to be commited to a period of security for the business into which they are investing, and the company management need to be realistic about everything that they do, and their expectations. I wonder, since I do not know, whether in this particular case a period of just 15 months was a realistic timeframe for the investment.

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