Any other business
5 British business collapses during 2014
12 min read
17 December 2014
The new year is drawing closer, so we’ve looked at five businesses that fell into administration in 2014, observing sectors including technology, sports and retail.
As 2015 approaches, Real Business is looking in depth at different business problems and successes from over 2014, both at home and abroad. As part of the continuing review, we’re now looking at the devastating consequences that can happen to companies when poor financials and trading conditions set in with UK business collapses from across the year.
Retail schemes like the government-backed Small Business Saturday are designed to keep the high street alive, with spend on the 6 December at £543m.
But what happens without huge commercial pushes to encourage consumer spending
Online is an obvious headache for businesses, with cheaper prices often found on the internet, while the trend of showrooming – the process that sees consumers use their smartphones for price comparisons when in stores – is yet another issue to deal with.
Sometimes though, it’s a case of plain old bad luck that can kill a promising business, and starting off our review of 2014 business collapses is a technology startup whose investor got cold feet.
Bloom.fm was a British mobile-only streaming service that wanted to take on the big boys, like Spotify and Deezer, with a platform that provided users more variety when it came to payment models. With 22m songs to choose from, users could select from bundles priced at £1, £5 or £10 a month, and CEO and founder Oleg Fomenko’s vision was to put an end to piracy by supporting people who relied on illegal downloads or YouTube as a result of not being able to afford other services.
It soft launched in January 2013 before ramping up promotional activity later in the year to then hit the one million user milestone in March 2014, but investment was suddenly ended in April. A blog from the company, said: “It’s come so out of the blue that we don’t have time to find new investment. So, with enormous regret, we have to shut up shop. This is a poetically crappy turn of events as our young business was showing real promise. Our apps and web player are looking super-nice and we had 1,158,914 registered users in a little over a year. Yep.”
The London startup, which employed around 30 members of staff, fell into administration and launched a campaign to find a buyer by 9 May though unfortunately a knight in shining armour failed to come riding in.
Speaking of the deal that fell through, Fomenko, said: “We have worked furiously on finalising it but unfortunately, due to very tight timelines and complexities associated with the administration process, the deal fell through at the last minute. I would like to offer massive thanks to my team who have supported us through such a difficult time, our users who gave us a reason to get up in the morning and all our business partners for the rare opportunity to launch something truly innovative.”
On 15 September, high street phone retailer Phones 4u, which possessed 700 stores and 5,600 employees, fell into administration despite an annual turnover of £1bn. PwC handled the proceedings, temporarily closing stores while looking to bring in a buyer.
The third party phone seller lost its contract with O2 earlier in the year, which was followed by Vodafone and then EE declining to continue their partnerships with the company. As a result, 630 redundancies at the company’s head office followed just days after in an attempt to restructure the business – with 400 people retained to support PwC.
The UK’s 4G leader EE stepped in during the administration to acquire 58 stores for £2.5m, thus saving 359 jobs, while 800 staff were transferred to Dixons Carphone. Meanwhile, Vodafone resurfaced to buy up a further 140 sites for an undisclosed fee to save 890 jobs “as a way to accelerate our retail expansion programme,” according to a statement from the network.
Things turned very sour very quickly, and Stefano Quadrio Curzio from private equity owner of Phones 4U, BC Partners, said: “Vodafone has acted in exactly the opposite way to what they had consistently indicated to the management of Phones 4U over more than six months. Their behaviour appears to have been designed to inflict the maximum damage to their partner of 15 years, giving Phones 4U no time to develop commercial alternatives.
“EE’s decision on Friday is surprising in the context of a contract that has more than a year to run and leaves the board with no alternative but to seek the administrator’s protection in the interests of all its stakeholders.”
Meanwhile, the founder of Phones 4U John Cauldwell, who sold the business for £1.6bn eight years ago, took to Twitter to voice his outrage, posting: ”I am sickened and saddened for nearly 6,000 wonderful employees who made @Phones4u into a great business. #ruthlessEE #ruthlessvodafone.”
Formula One racing team Caterham F1 declared it had skidded into administration in October, with Smith & Williamson overseeing the process as bailiffs hit the tracks and started taking away steering wheels, pit equipment and even a test car.
What was particularly interesting, however, was what the business did to stay afloat and repair the damage – adopt crowdfunding. The company launched a campaign on Crowdcube to get to the Abu Dhabi Grand Prix with a view to find a buyer and pay 200 staff their outstanding month’s wages with a target of £2.35m from professional investors and F1 fans alike in exchange for Caterham assets. The move was described to Real Business by Caterham Sports administrator Finbarr O’Connell as “an emotional plea to really assist the team”.
The news had generated a global buzz, but not everyone warmed to the innovation – F1 boss Bernie Ecclestone, said: “We don’t want begging bowls. If people can’t afford to be in Formula One, they have to find something else to do.”
Not all of the money was secured ahead of the Grand Prix, but the 80 per cent raised was enough to get the team to the final race of the season. After it, O’Connell, said: “My discussions with potential purchasers are continuing and showcasing CaterhamF1 at Abu Dhabi has shown prospective purchasers the spirit and commitment of our race team which is the ‘human engine’ of the team.”
Despite that, the 230-strong employee base was made redundant a week before the Grand Prix and Caterham was accused of burying the news with the crowdfunding scheme.
The UK franchise of Canadian lingerie firm La Senza was bought by Dragons’ Den businessman Theo Paphitis before he sold it on to private equity firm Lion Capital for £100m in 2006. Paphitis left the board in spring 2011 and shortly after in December, La Senza UK had filed for administration with KPMG due to “trading conditions.”
Kuwait-based retail franchise operator Alshaya secured an agreement to acquire the business, retaining 60 of 80 stores and 1,100 of the 2,600 staff. Seemingly it wasn’t meant to be and the trading conditions continued to put strain on the business. Alshaya now operates under the name Marnixheath, despite £100m of investment on new products and store revamps. With that, administration was declared again in July 2014 – at which time there were 55 stores in operation and 750 staff members.
PwC is handling the proceedings this time around, and joint administrator Robert Moran, said: “The challenging conditions in the UK high street are well documented. Like many other retailers, La Senza has been hit hard by the difficult economic environment and a slowdown in consumer spending. The administrators are continuing to trade the businesses as normal for the time being whilst discussions take place with interested parties in respect of a sale. We welcome any approaches to purchase all or part of the store portfolio. Staff have been – and will continue to be – paid for their work.”
Like its fellow female-focused retailer La Senza, fashion chain Jane Norman also filed for administration in summer of 2014 for the second time, after an original filing in June 2011. The survival strategy the first time was supported with The Edinburgh Mill Group, which bought the brand and 33 stores, but the secondary collapse has been put down to the company’s limbo-like positioning as “not cheap and not upmarket”.
It’s a stark turnaround from its performance in 2007 when it reported a 45 per cent year-on-year increase in profits and a plan to open 100 new stores, having already doubled to 116 from the previous year. This year Grant Thornton was appointed to oversee the restructuring in June, at which time Jane Norman was the employer of 160 members of full and part-time staff in 24 stores.
Partner Les Ross, said: “We intend to continue trading the stores for as long as possible with a view to achieving the best outcome for all concerned, in particular those people based in the stores. It is likely, however, that store closures are inevitable.”