Bookstore retailer - case study

• Sector – Retail
• Turnover - £2m
• Number of employees – 40 

Situation

The Company traded for 25 years with shops across most towns in the North West.  However, the business had lost its unique selling point of offering discounted books to the public and suffered increased competition from supermarkets which had added low price books to their offering; from the rise in online retailers able to sell more books cheaply as a result of lower overheads and from the increase in popularity of e-books.  This competition had a significant effect on turnover, cutting this in half.  At the same time, the costs of running the business (particularly the liability for rents and rates) had increased, squeezing the profit margin to the point where the directors decided to restructure the business, closing the least profitable retail units but incurring the associated cost of redundancies.

Despite the restructuring, the remaining three shops experienced reduced trading and continued to rely on the directors’ funding the losses.   

Approach

With concerns over the viability of the business, and the Company bankers requesting an increased personal guarantee, the directors sought specialist insolvency advice from Mazars.  The conclusion was that the Company was insolvent and could not continue to trade without the injection of further funds.  Therefore it ceased to trade, with all employees being made redundant and Liquidators appointed. 

Impact

Following the appointment of the Liquidators, a buyer was found for the fixtures, fittings, and stock from all three shops, who was looking to set up a shop, therefore maximising the value for creditors and therefore reducing the level of the personal guarantee that the director was liable for.

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