Scott Wright: Struggles of historic Scottish retailer hammer home challenges facing economy

McColl’s, which has more than 1,100 managed convenience stores and newsagents across the UK, was then quickly thrust into a takeover battle between two of the biggest players in the grocery sector.

EG Group, the petrol forecourt operator owned by the Issa brothers who made a successful swoop on Asda last year, made the early running. Over the weekend, it looked to be the favourite to land McColl’s, having pledged to instantly repay more than £160 million of the company’s debts.

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After a deadline for takeover offers was set for 6pm on Sunday, a last-minute bid tabled by Morrisons was followed by a revised proposal from EG. Morrisons ultimately clinched a deal to acquire the business in a pre-pack deal last night, its offer perhaps boosted by virtue of its long-standing position as wholesaler to McColl’s.

The predicament McColl’s found itself in followed a challenging few months, during which it strived to resolve long-running funding issues with its lenders. This was played out against the challenging backdrop of Covid, supply-chain upheaval and, in recent months, surging inflation.

One retail observer highlighted that McColl’s had achieved success in some of its stores with the development of a fresh food offer, in partnership with Morrisons, its wholesale partner.

Teresa Wickham, a former director of Safeway, told the BBC that such stores had performed well as consumers shopped locally during the pandemic, but said the move lacked sufficient investment, noting that only a small proportion of stores had ultimately made the transition to the McColl’s Daily concept.

That Morrisons has struck a deal to safeguard all 17,000 staff and the 1,160 stores of McColl’s is hugely encouraging, as is the fact it will take over the company’s two pension schemes. It is also good for the McColl’s business that Morrisons will repay the company’s lenders, removing a burden that has dogged the business for many months.

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But while McColl’s has been saved, the hard work in some ways is only beginning. Indeed, Morrisons has the task of reviving the business amid the toughest conditions the retail sector has faced in years.

Having lost so much trading time in the last two years to Covid and associated restrictions, retailers are striving to get back on their feet at a time when inflation is rampant.

Supply chains remain in upheaval following the pandemic, and consumers face the most acute cost-of-living crisis for 30 years. This has been sparked by a huge surge in energy bills that followed the 54 per cent increase in the price cap for typical dual fuel customers in April.

And Keith Anderson, chief executive of ScottishPower, warned yesterday that bills will go up by a further £900 per year for millions of customers this winter after the cap is lifted again in October. This could put millions more people into fuel poverty unless government steps in.

With inflation now forecast by the Bank of England to rise above 10 per cent by the end of the year, people are becoming increasingly worried about how far their cash will go, which will inevitably have consequences on how and where they spend.

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And it is not just consumers who are facing this cost crisis. Businesses such as retailers are finding it significantly more expensive to buy in goods, power their stores and, in certain cases, pay their staff.

It is against this straitened backdrop McColl’s must somehow redefine itself, find a new niche in a highly competitive retail space, and re-engage with consumers who do not have the same cash to spend as they did one year ago.

A glimmer of hope for Scottish shop owners did emerge last week, when the Scottish Retail Consortium released figures showing that footfall had began to recover in April. The figures, published on Friday, showed that footfall fell by 14.8% in April compared with the same period in 2019. That was a 6.3 percentage point improvement on the year-on-year fall in March, though was worse than the UK average decline of 13.1%.

The SRC said the easing of Covid restrictions and the return of commuters and tourists had led to a “noticeable” uplift in people visiting cities and shopping centres.

David Lonsdale, director of the SRC, said the figures offered grounds for optimism, observing that other indicators such as retail sales and shop vacancies are also now moving in a “more favourable direction”.

But he warned: “The challenge will be to sustain this improvement in the months ahead as economic headwinds affecting both consumer and business sentiment and spending power exert their grip.”

Of course, retail is not the only sector that is dealing with the consequences of the current economic malaise.

Travel and hospitality have also suffered enormously throughout the pandemic, and are only now beginning to see the benefit of operating with looser restrictions.

Firms in those sectors will be worried about the cost-of-living crisis and may be bracing themselves for a downturn in demand, with people simply unable to afford to travel or go out for drinks and meals as often as they did before inflation began to surge. In these circumstances, it is highly unfortunate the UK Government does not see fit to take more action to ease the cost-of-living crisis that millions of people face.

Indeed, legitimate questions are already being asked over the paucity of its response to the energy crisis so far, which is

inadequate given the extent to

which bills have increased for

those who can least afford it.

Only by stepping up with a meaningful financial injection can people be insulated from the worst of the energy crisis, and the blow that inflation is inflicting on countless businesses be softened.