Why did Wilko fail and what can retailers learn from its collapse?

The popular chain Wilko was one of the most recognisable bargain retail brands on the high street until it went into administration in August this year.

At the time of its collapse, Wilko had more than 400 stores throughout the UK and employed 12,500 people.

Originally a single hardware store that opened in Leicester in 1930, Wilko stores became a popular one-stop shop for low-cost household goods, gardening equipment and even pick-and-mix sweets.

So, how did this mighty retail giant fall so spectacularly from household name to high street casualty?

A closer look at Wilko’s business reveals numerous mistakes and missed opportunities that led to the company’s downfall and provide salutary lessons for the UK retail market.

Competitors offered a better bargain retail experience

When Wilko entered the bargain retail space it was the first of its kind. However, the late 70s and early 80s saw the birth of several competitors, including B&M, Home Bargains and The Range – rivals that would gradually eat into Wilko’s market share.

The bargain retail sector typically fares well in economic downturns when consumers have less spending power and are eager to stretch their budget further. According to figures reported by Retail Gazette, B&M and Poundland saw sales rocket 13.5% and 8.6% respectively in their last quarter.

However, as competitors adapted to a post-Covid market and constantly evolving consumer shopping habits, Wilko failed to do so.

Wilko failed to differentiate its offer from other retailers in the increasingly competitive value sector. This meant that shoppers could snap up the same products at lower prices by going to Wilko’s competitors.

Customers were also frustrated by missing products and empty shelves as Wilko struggled to manage supply chain issues. This problem was exacerbated by the company’s continually expanding product range. In comparison, competitors such as Home Bargains retained greater control over their supply chains by focusing on a smaller product range.

Financial issues compounded supply chain issues as Wilko began to have difficulties paying suppliers. According to a report by the Independent, Wilko’s turnover peaked at more than £1.6 billion in 2018 before decreasing every year since.

Too many stores in high-cost, outdated locations

At a time when many bargain retailers were moving into more affordable and increasingly popular out-of-town retail parks, Wilko retained a strong presence on the high street – at great cost.

Many of Wilko’s 408 stores were located in premium-rate locations. Combined with the low profit margin on bargain products, this is likely to have contributed to the company’s financial difficulties in recent years.

The company may also have experienced a drop in footfall as shopping habits changed post-pandemic. Many people now favour out-of-town retail parks that offer greater accessibility and more parking than the high street, which is often seen as outdated.

The key takeaway here is that Wilko failed to invest in modernising its business model, systems and infrastructure. According to Business Matters, it missed the opportunity to adapt to the changing retail landscape and capitalise on new trends.

A high turnover in the leadership team and huge dividends for Wilko’s owners

Despite losses of £37 million in 2022, the Guardian reported that Wilko paid its owners £3 million in dividends. Within several months (January 2023) the company was seeking emergency funding and just eight months later it collapsed.

The high turnover of senior leadership staff is also likely to have contributed to these poor management decisions, and other missteps. Managing Director, Alison Hands, stepped down just 18 months into the role and Alex Russo, former head of finance at Asda, left after a two-year stint as Wilko’s chief finance officer.

Without consistent leadership, Wilko was unable to develop a clear and resilient business plan that could help it surmount the growing financial challenges it was facing.

3 lessons for the UK retail sector

Wilko’s collapse highlights the challenges facing high-street retailers in an evolving retail landscape.

By learning from Wilko’s mistakes and missed opportunities, other retailers could avoid disaster.

1. Seek professional advice as early as possible.

When a business experiences financial trouble it should seek professional advice as soon as possible. Wilko began having financial problems five years ago, yet it failed to make the necessary changes to stave off collapse.

As recently as January this year, This is Money reported that the company took out a £40 million loan from controversial restructuring firm, Hilco, in a last-ditch attempt to avoid administration. By August, it was evident that this was too little, too late.

2. Stay agile and adapt to changes in the market

The retail sector is continually evolving. Changes in the market and consumer behaviours can occur rapidly. Businesses need to monitor trends, stay agile and adapt to these changes if they want to avoid becoming outdated and irrelevant.

Wilko had multiple warning signs over many years but failed to implement the modernisation of its infrastructure and operations that were necessary to remain competitive.

3. Build a strong and consistent leadership team

A retail business needs strong leadership that has the capacity to develop a vision and make plans to achieve it.

Wilko was not equipped to adapt to the changing retail landscape nor to tackle its financial challenges due to a revolving door in the leadership team.

Get in touch

Planning for the future and acting quickly at the first sign of financial difficulties is the best way for your clients to keep on top of their finances.

If your clients would like to set up an initial meeting, they should email mail@delaunaywealth.com or call 0345 505 3500.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.