Why did the Wilko franchise fail, and what can business owners learn?

On 10 August 2023, popular retail store Wilko entered administration.

The 93-year-old company, founded by J.K Wilkinson in Leicester, announced it would close its 408 stores around the UK after the company went into insolvency. According to Reuters, this closure could result in more than 9,000 jobs being lost.

After Woolworths went bust in 2008, Wilko was its closest relative in terms of similarity of products, price points, and locations – and in many cases, it filled the gaps in the high street that Woolworths left behind.

Now, with Wilko having been a staple of the British high street for some time, the sudden failure may spark concern among fellow business owners.

So, why did Wilko fail, and what can business owners learn? Keep reading to find out.

4 key reasons behind the Wilko insolvency

1. Being outflanked by competitors

Just like Woolworths, Wilko had a number of key competitors who all outflanked the store in one way or another.

B&M, B&Q, Home Bargains, Poundland, and Savers all have extremely similar unique selling points to Wilko, but these competitors can often beat Wilko on either price or quality. Plus, as the Guardian reports, many of these stores are located in larger retail complexes with car parks, making it easier for shoppers to make large purchases – unlike Wilko, which was typically found on town centre high streets.

The growing popularity of Wilko’s competitors happened in correlation with its decline, especially during the pandemic. For instance, the Guardian reports that B&M sales rose by 30% in the year to 27 March 2021, boosting its pre-tax profits by 108%. On the other hand, Wilko saw a 40% decline in visitor numbers in 2020.

2. Multiple management changes in a short time frame

Another potential nail in Wilko’s coffin is the fact that the company changed its management structure many times in the space of a few short years.

In January 2023, managing director Alison Hands left her position after only 18 months in the role. What’s more, chief executive Jerome Saint Marc vacated his role in December 2022.

On top of this, Alex Russo, who previously held a position as an Asda finance head, was chief financial officer of Wilko for only two years before leaving to take on a role at B&M in 2020.

3. Mounting debt

While the pandemic hurt many retailers’ profits, the package of government help, alongside tax reliefs, perhaps masked the losses Wilko was experiencing at that time.

However, once Covid-19 help ceased, Wilko bosses borrowed £40 million from Hilco (owner of Homebase and Cath Kidston) in January 2023, Bloomberg reports. This helped to plug gaps on the store’s shelves caused by delays in paying suppliers, but wasn’t enough to sustain the business.

4. The pandemic and cost of living crisis

The cost of living crisis has had an impact on many businesses. Yet the problem that made Wilko fall behind its competitors at this time was perhaps the fact that sales had been declining even before Covid-19 hit.

According to a report from Retail Insight Network, in the 2019/20 financial year, Wilko reported a 5.7% decline in sales, and a 3.9% decline in the previous year.

Then, once the pandemic arrived, supply chain issues, including the Suez Canal blockage, left shelves empty in many cases. All this, combined with the lack of footfall and decline in sales during the pandemic that you read about earlier, meant bad news for the company.

2 important lessons business owners can learn from Wilko’s failure

Although there were many moving parts that contributed to the Wilko insolvency, it’s important to grasp what business owners can take away from this sad closure.

Here are two lessons you could learn from the Wilko failure as a business owner.

1. Consistency is key

Building a reputable brand can take a long time – but as Wilko has demonstrated, age and reputation doesn’t necessarily make your business untouchable.

One of the key downfalls you read about earlier is the company’s constant changing of hands when it came to management. In your own business, it could be crucial to maintain a steady hand at the helm, particularly throughout the cost of living crisis.

Similarly, remaining a consistent, reliable brand could help keep footfall high. While Wilko was a high-street staple, they were soon outranked by B&M and similar stores that adopted an almost-identical brand style – often at lower prices or with sleeker designs.

While you can’t control what your competitors are doing, you can remain consistent as a trusted brand within your market. Being proactive about maintaining your presence, both online and in person, can help prevent your business’s popularity from falling by the wayside.

2. Know when to downsize

One criticism of the handling of Wilko’s insolvency is that Wilko management decided to leave many stores open, despite falling sales.

In a BBC report, retail analyst Catherine Shuttleworth says, “A cut to 250 stores would have been sensible […] tough decisions were needed but they simply weren’t made.”

In light of this comment, it could be helpful for business owners to consider when downsizing may be a more favourable option than simply borrowing more, as Wilko bosses decided to do.

While it can feel like a step backwards, knowing when to reduce your outgoings and focus on the core elements of your business could be hugely constructive if you’re experiencing financial issues. Setting your ego aside and prioritising the needs of the business could help you steer the ship through choppy waters.

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