Blockbuster the third retailer to fail in a devastating week for the UK high street
Around 300 Scottish jobs are under threat after Blockbuster became the latest big high street name to call in administrators.
The DVD and game rental firm, which has a chain of 528 UK stores employing 4,190 staff, appointed accountancy firm Deloitte as administrator on Wednesday.
Deloitte said Blockbuster will continue trading while it markets the business to potential buyers.
Lee Manning, partner in Deloitte's restructuring services practice, said: “We are working closely with suppliers and employees to ensure the business has the best possible platform to secure a sale, preserve jobs and generate as much value as possible for all creditors.
“The core of the business is still profitable, and we will continue to trade as normal in both retail and rental whilst we seek a buyer for all or parts of the business as a going concern.
“During this time, gift cards and credit acquired through Blockbuster’s trade-in scheme will be honoured towards the purchase of goods.”
Blockbuster's US parent company was declared bankrupt in 2011 and was rescued by US pay-TV provider Dish Network in a $320 million (£200 million) deal.
Dish Network had been trying to sell off the UK division after profits nosedived as a result of increasing competition from online streaming video services, cheaper DVD sales and online movie rental businesses like Netflix and Lovefilm.
Blockbuster ran a loss of £8.5 million in 2011 and a further £11.2 million loss in 2012.
Blockbuster is the third big high street retailer to call in administrators in the past week, following the collapse of HMV and Jessops.
Collectively, the three retailers employ more than 10,000 people across more than 1,000 stores throughout the UK.
On Wednesday, fashion retailer Gio-Goi also called in administrator KPMG, admitting a restructuring of the business last year - which led to store closures in Glasgow, Aberdeen and Manchester - had failed to deliver growth.
KPMG's Jane Moriarty said: “Following a restructuring programme last year, Gio-Goi was unable to return to growth levels enjoyed up until 2009 and has become another victim of the recessionary environment.
“We are now looking to sell the business and assets and will continue to satisfy customer orders pending a sale of the business.”
Last December shoe shop chain Stead & Simpson also announced that it is closing 90 of its shops which it said was likely to result in 500 jobs being cut.
And last November, electrical retailer Comet, which had 235 stores and employed 7,000 staff, was forced into administration after posting losses of £95 million for the year to April 2012 and then a further £31 million loss in the five months ending September 2012.
Real estate research firm Local Data Company (LDC) estimates up to 1,400 UK stores have been put under threat of closure in the past month.
LDC director Matthew Hopkinson said: “The administration and potential closure of over 1,400 stores in less than a month far surpasses Woolworths' 807 in January 2009.”
“This has the potential to increase the national shop vacancy rate by nearly five per cent to an all-time high of over 19 per cent if all the stores close and are not reoccupied.”
Big high street retail failures also spell trouble for pension funds and insurance companies, as UK commercial property accounts for more than five per cent of the £2.25 trillion invested by these types of companies.
Latest figures from property agent CBRE suggest the UK retail sector has lost 198,000 jobs and £1.48 billion in rents for landlords, many of which are large pension funds, since the onset of the banking crisis in 2008.
The most recent Property Data Report (2012) from the British Property Federation (BPF) estimates a 10 per cent fall in the value of UK commercial property “would wipe around £12 billion off the value of insurance companies and pension funds”.
The BPF's Property Data Report 2012 compiled data from the Association of British Insurers; the Association of Real Estate Funds; the British Council for Offices; the British Council of Shopping Centres; the British Property Federation; the Investment Property Forum; the Royal Institution of Chartered Surveyors; and the Urban land Institute.
Its report found UK commercial property value reached £717 billion in 2011 “helped by small price rises”, with the value of retail property – the largest commercial property sector – estimated at £227 billion.
The report estimates rental costs for retailers at £15.6 billion in 2011 – around a third of total staffing costs – but “represents a small fraction – about five per cent – of their turnover” the report finds.
Also highlighted in the BPF report is the value of debt secured on commercial property in the UK, estimated at £235 billion.
The report states: “Many occupiers and most investors, other than institutions, buy commercial property using a combination of debt and their own capital. While property values ended the last decade at the same level as they started, the use of debt increased five fold between the end of 1999 and 2009.
“However, the value of outstanding loans has been falling since late 2009. Approximately £235 billion of debt is currently secured on commercial property, including developments. This represents a third of the total value of commercial property.”
The report adds: “UK institutions – responsible for personal long term savings and pension plans – are still the biggest owners of commercial investment property. They directly own about a quarter of the total, although their share is continuing to decline.
“Overseas investors are fast approaching the UK institutions as the biggest single category of owner and, as in the UK equity market, are set to become the largest owners.”
Last year the Bank of England's Financial Policy Committee (FPC)- set up by the coalition government to identify potential problems in the finance sector before they become a wider economic problem – warned UK banks' self-calculated “weight risking” on some of the assets they hold, particularly property, are overvalued.
The FPC stated last November UK banks would need to raise between £20 billion and £50 billion of new capital or dramatically restructure their business after making clear it had little faith in how banks value the assets on their books.
Royal Bank of Scotland Group, which remains more than 80 per cent taxpayer owned, is reported by the FPC to have the biggest exposure to commercial real estate loans and the weakest capital ratio of the big four UK banks.