Luminar collapse a sign of troubled times

The demise of Luminar, Britain’s biggest nightclub chain, has come as little surprise. But it also signals that far from improving, trading conditions in the leisure industry and retailing are tightening.

After several years of troubled trading and a series of profits warnings, the biggest shareholders refused to put in further equity and the banks pulled the plug on the group, which has about £85 million in debts. Although not a direct parallel, the collapse of Luminar marks the biggest bankruptcy affecting drinks suppliers since the £50m demise of Oddbins at the end of March.

Oddbins’ creditors are still awaiting news from Deloitte, the administrator, about whether they will receive anything from the liquidation of the group.

Despite September’s UK retail sales figures showing a rare improvement, the overall trend is remorselessly downward as households grapple with inflation at 5% and average earnings growing by only 2% a year. And the consensus is that drinks wholesalers have suffered a similar pattern, with a downturn in October compared with the welcome buoyancy of the market in September.

All eyes are now on Christmas and the New Year, the peak of the selling season. While the “sell in” to the multiples has been relatively successful according to anecdotal reports, there are fears about what will happen to the “lower middle” end of the consumer price spectrum, where demand is already reported to be fragile.

For the past two Christmas seasons the trade has been beset with problems not of its own making – rising VAT and excise duty to name but two unwanted distortions to the market. And in the subsequent dog days of January and February suppliers have counted the cost as retailers folded under the pressure of cash flow problems, not least Oddbins.

It is reckoned that on average one in five high street shops is now empty, and according to retail research house Verdict, more than 44,000 specialist retail stores have been closed in the UK over the past decade. Worse, a rash of further closures and collapses is expected. As far as alcohol is concerned, an ever-increasing proportion of the retail market is being concentrated in the hands of the supermarkets and traders such as Majestic and the online wine clubs.

So the potential for specialist wine and spirits retailers to survive on the high street is being further squeezed by dwindling spending power on the one hand and on the other by direct competition from chains very willing to employ their extra buying clout to cut prices to a level at which independents are hard pressed to cover their costs.

Importers are very clear that this year they will treat potential new customers (and some with whom they have traded for a while) with extreme caution, especially as it is widely believed that after Christmas the banks will look even less charitably on retailers with cash flow problems. After all, the banks themselves are under pressure to remove risk from their lending.

The clocks go back tomorrow night and the long, dark evenings begin. Some will not have survived when they go forward again in the spring. Working out which is a credit controller’s nightmare. “Cash with order” will be an increasingly common condition of supply.