Floors-2-Go has entered administration, becoming the latest victim of the consumer downturn. After struggling against the expansion of the non-specialists and the extremely hostile trading conditions facing big ticket retailers, particularly those related to the housing market, Floors-2-Go has become the 35th retailer, and the 12th housing-related retailer, to succumb to the pressure this year.
The demise of Floors-2-Go, which occurred on the same day as London's iconic department store the General Trading Company, paints a clear picture of the extremely challenging conditions currently facing retailers. However, while there is some element of hope for the General Trading Company, it really is the end of the road for flooring retailer Floors-2-Go.
The failure of Floors-2-Go, which has resulted in the closure of 41 stores and 97 redundancies, comes as no real surprise. Following a very disappointing January, a time usually associated with strong sales for the sector, the retailer shed 15% of its workforce. Prior to this, the retailer's expansion plans were significantly scaled down as it concentrated on operating margins and cost control.
Although it expanded aggressively over the past six years, and nearer the turn of the century enjoyed robust like-for-like sales growth, Floors-2-Go witnessed an abrupt turnaround in fortunes. In its last set of accounts before being bought by its current owners Alchemy Partners, and taken private in 2007, like-for-like sales were down 8.6% for the six months to June 30, 2006. A greater concern, however, was that, at the time, operating profits were down 22.5%. Given the retailer's buying scale and unique relationship with suppliers (it was the only leading floorcoverings specialist to deal directly with its suppliers) the dramatic decline in profitability was an early warning sign that all was not well.
With Floors-2-Go continuing to be hit hard by deteriorating conditions in the DIY market and non-flooring specialists such as B&Q and Homebase improving their offers, sales performance at the retailer is unlikely to have improved. Moreover, with cost inflation and price deflation impacting the business, controlling operating profits will have been a challenge, and they are likely to have fallen further.
Despite working hard to expand its offer to incorporate more premium lines, Floors-2-Go struggled, not just because of the increased level of competition resulting from the non-specialists encroaching on its territory, but because of the consumer downturn impacting its sector more than any other. Although Floors-2-Go had broad appeal to both trade and retail customers, with the housing market deteriorating, home improvements, done professionally or otherwise, are simply not a priority for consumers as they cut back on non-essential spend. Moreover, unlike its non-specialist rivals, Floors-2-Go is unable to rely on sales from other parts of the business to shield itself from the difficult conditions, leaving it fully exposed to the consumer downturn.
While other retailers that have failed this year might yet be rescued from administration, given the state of the sector, it is unlikely that anyone will come to the aid of Floors-2-Go.
Source: Verdict Research