What Baugur's Fall Means for British Retail

This week the rout of the UK retail sector continues with the demise of Icelandic retail investor Baugur.

According to reports, the investment company went into a form of Chapter 11 after Icelandic bank Landsbanki pulled funding. The bank has also petitioned the High Court in London to force BG Holdings, the company's UK arm, into administration. BG Holdings has stakes in retail chains such as Hamleys, House of Fraser and Iceland. Other retailers with stakes owned by Baugur include jewellery brand Goldsmiths and Mosaic Fashions -- a group that includes high-street chains Oasis and Karen Millen.

Some of the brands under the Baugur umbrella are at pains to distance themselves from the investor, but the implications for the UK high street are nevertheless significant. Baugur was a dominant investor in the retail sector, which has been steadily extricating itself from public ownership in an effort to free itself from shareholder demands for growth.

Now that one of the more high profile investment companies has left the arena it raises the question of whether private equity funding will dry up and retailers will be forced to look elsewhere for ready cash. Will they go back to the markets? Probably not, as retail business valuations will have fallen and stock market investors will a lot less inclined to invest in retail stocks now that consumer confidence is low.

More likely, retail expansion plans will have to be shelved. There will be more consolidation of retail brands if private investors pull out of their retail interests, forcing them on the market at rock bottom prices to stay alive.

Speculation as to who will buy Baugur's assets has already begun, with Arcadia Group boss Sir Philip Green, Alchemy's Jon Moulton, Scottish retail entrepreneur and philanthropist Sir Tom Hunter, and sovereign wealth fund chairman Ahmad M Al Salem of the Saudi Arabian General Investment Authority, all suggested bidders for parts of the group.

Evidently they won't be getting it from the UK government. The British Retail Consortium gave the latest cut in lending interest rates by the Bank of England a lukewarm reception. In a statement, Jane Milne, the BRC's business director, said: "Interest rate cuts are not the only tool to fix the recession. The key issue now is not the cost of credit - but its availability."
One small piece of good news in retail is the prospect that high-street institution Woolworths will live on as a Web brand. According to Silicon.com, catalogue retailer Shop Direct, which runs other stalwarts Littlewoods and Kays, has bought the brand.

It's heartwarming that an icon of the high-street icon may yet survive online, but brand value is possibly even more important on the Web than on the high street. Web shoppers need to have a very clear idea about what it is they are logging on to a site to get. Woolworths never really stood for any category in particular, which is why it got into trouble on the high street in the first place.