Collapse of Toys R Us, Maplin into administration rocks retail sector

Toys R Us went into administration on Wednesday after failing to secure a rescue deal, while electronics retailer Maplin collapsed as talks with a potential buyer broke down.

The toy retailer was facing an imminent collapse in December but was saved by a rescue plan to restructure operations.

However, with the deadline on a £15m tax bill looming, more money owed to lenders and a poor Christmas trading period, the company was forced to call in administrator Moorfields to conduct an orderly wind-down of its store portfolio over the coming weeks, putting more than 3,000 jobs at risk.

The retailer had failed to adapt to a changing retail landscape, sticking to its warehouse style stores, with no experience for the customer and no compelling online presence.

Simon Thomas, a Moorfields partner, said: "We have informed employees about the process this morning and will continue to keep them updated on developments. We are grateful for the commitment and hard work of employees as the business continues to trade. We will make every effort to secure a buyer for all or part of the business."

Meanwhile, 2,500 jobs were at risk at Maplin after talks with a potential buyer broker down.

In what is a pretty torrid day for UK retail, there are implications for the retail market in general and investors elsewhere are seeing some read-across, with Mothercare shares tumbling 7% as it has a few similarities with Toys R Us, while shares in Debenhams and Marks & Spencer are also lower.

Shares in Sainsbury’s, which investors see as standing to gain from its Argos general merchandise arm, are up, as are Tesco and Dixons Carphone.

Last week, Sky News reported that Maplin was in talks with Edinburgh Woollen Mill, the owner of Peacocks and several other retailers, but those discussions broke down on Tuesday. With a £15m VAT bill to contend with, PwC stepped in to handle the company’s administration.

Maplin chief executive Graham Harris confirmed that it had not been possible to secure a solvent sale of the business, meaning there was "no alternative but to enter into an administration process".

"We believe passionately that Maplin has a place on the high street, and that our trust, credibility and expertise meets a customer need that is not supported elsewhere."

Neil Wilson, senior market analyst at ETX Capital, said: "In both cases, the Amazon effect is all too clear to see, but there is more to it than that - there are retailers out there who are adapting and prospering.

"Clearly these are tough times in UK retail, with a combination of structural game-changers and a softening in consumer confidence affecting larger ticket items. Low rates and a buoyant economy kept them afloat for longer maybe than they ought to. Ultimately this is a necessary shakeout of some pretty out-dated retailers, which though terrible for those affected by job losses, is likely to mean a leaner, fitter retail market and a more productive use of capital. The question is whether there are more out there that could by the wayside."

David Cheetham, chief market analyst at XTB, said the demise of Maplin and Toys R Us is a timely reminder of the struggles faced by bricks and mortar retailers of late, with the rise of e-commerce seeing many firms that were previously market leaders going out of business.

"A change in consumer spending preferences has seen a surge in online competition and caused a fundamental shift in the trading environment. Unfortunately for Toys R Us and Maplin it appears they have gone the way of many former high street favourites such as Woolworths in failing to adapt to a change in the times and ultimately they have paid the price for failing to keep up with a seismic shift in the trading landscape."