Canadian Pacific

In the Dutch retail sector, quite a lot of shops have been declared bankrupt in the last two years. The most famous bankruptcy is the one of V&D (Vroom&Dreesmann), but there are many more: Aktiesport, Perry Sport, Dixons, Scapino, Dolcis, Manfield, DA, Miss Etam, ‘Schoenenreus’ and Free Record Shops. This list is much longer but I will focus on these particular shops because they were the standard ones in the Dutch shopping streets. These stores are all in different segments. Aktiesport and Perry sport were both specialized in sportswear, accessories and other sport related products. Dixons was a tech retailer ranging from smartphones to computers and other electronic devices. Even though Scapino, Dolcis, Manfield and ‘Schoenenreus’ were all selling shoes, Manfield and Dolcis focused on the higher end of the market while Scapino and Schoenenreus focused on the lower end. Furthermore, DA was a drugstore, Miss Etam focused on middle-age women’s clothing and Free Record Shop was selling music CD’s, games and DVD’s.

The main question is now, despite the diverse segments of all these stores, how is it possible that none of them survived?

Before I start, I will briefly explain bankruptcy. If you as a company cannot pay your bills anymore, you can first ask for a suspension of payment, meaning an extension of the payment period. Reason behind such a possibility is that a company may suffer from bad times now, but it may be only temporary. This is not a big problem because once you have paid your bills within the extended time, you can continue doing business. The situation becomes more dramatic when your troubles with paying bills are not just temporary. In that case, your creditors will go to the court and ask for a declaration of your bankruptcy. When you are declared bankrupt, the court appoints one or several trustees (in Dutch: curator). The job of a trustee is to pay all the creditors, for as far it is still possible. You, as the owner of the company, are not able to do any business anymore and the trustee will make all the decisions. The person will also decide about a possible second beginning. When the chance for a second beginning is not granted, and the creditors are paid for as far is possible, you have nothing anymore and it means the official end of your business.

I will discuss one of the most shocking bankruptcies, namely the one of V&D, the Dutch retailer founded 129 years (!) ago. V&D had 62 warehouses in the Netherlands. This warehouses were huge buildings in almost every large city, most of them also had an in-house restaurants called La Place. These in-house restaurants were now taken over by a supermarket chain called Jumbo. V&D had around 10.000 employees. It was already suffering losses for a of couple years and in the beginning of 2015, they came with a rescue plan, which involved a big reorganization, lower rent prices and new investments. Unfortunately, in the end of 2015, the firm had financial problems and they asked for an extension of payment. The American investor Sun Capital, the owner of the shops, refused to invest more money in V&D after the bad years. Therefore, the creditors could not be paid back again. On the last day of 2015, V&D officially declared bankruptcy. But what are the reasons for this bankruptcy? I will sum up four main reasons for this bankruptcy, according to Quote.

The first reason is that V&D focused on the mid segment, meaning that the quality offered was good (but not outstanding) and the prices were neither high nor low. To explain this more, I will give an example. The low segment is, for instance, the Primark, which offers maybe not the best quality products but in extremely low prices. The high segment represents brands such as Tommy Hilfiger, Ralph Lauren and Chanel. Clothes with a high price but also a high quality. A huge high segment warehouse in the Netherlands is ‘De Bijenkorf’. The V&D can be placed between De Bijenkorf and the Primark.
Due to the crisis in 2008, the mid segment was suffering, because people would rather buy cheap clothes with lower quality than more expensive clothes with good quality. Stores like Primark and H&M, which are in the low segment, saw an increase in their sales where stores like V&D, Manfield and Miss Etam saw a decrease in their sales and therefore also in their profits. To clarify this by numbers, in 2012 the loss of V&D was ‘just’ €19,2 million, where the loss was already €42 million in 2013.

The second reason is that the V&D did not implement a strict strategy. The ambiance of the stores, their product assortment and the structure of their prices were a big discussion point within the board. One of V&D major competitors is ‘De Bijenkorf’ which is a luxurious warehouse. They sell clothes, perfumes, cosmetics, jewelry, leather ware, shoes and other products of the most luxurious brand such as Louis Vuitton, Gucci, Ralph Lauren, Tommy Hilfiger and many more. V&D has to be different to attract customers but this never succeeds. As a result, ‘De Bijenkorf’ is still running as luxurious warehouse and now, with their biggest competitor is bankrupt they can expand even more and also attract the customers who used to go to V&D by offering mid-segment products.

The third reason is that the V&D did not apply the e-commerce on time. Maybe this is one of the most important reasons of their bankruptcy. Just in 2008, the V&D opened an online shop with a limited assortment of their products. Competitors in the lower segment (H&M and Primark) as well the high segment (‘De Bijenkorf’) already had a quite big market share in online shopping. They also offered more products through the online webshop. In the last years, V&D focused a lot on online shopping but it was already too late by then.

The fourth and last reason is that the V&D did not have a constant board. This can be seen as the cause of what was mentioned above in the second reason. In the last three years they had over three different CEO’s. This inconsistency of the board is not good because neither one of the CEO’s finished his tenure and therefore also not finished his policy that he and other board members established.

This reasons can also be applied to the other stores that went bankrupt. According to Statistics Netherlands (CBS), the amount of bankruptcies decreased with 17 percent in 2015 but the bankruptcies of V&D and the other stores show that the impact is very huge. There is one main reason that can be applied to the bankruptcy of all the stores and that is the upcoming online shopping. Almost all firms that are bankrupt did not apply the e-commerce on time. This will lead to huge deferred profits. It is estimated that e-commerce will contain around 25 percent of the total turnover in the retail sector. According to ING Economic Bureau, the vacancy of stores will be even more in the near future. The rent of the buildings is going up where the turnover is going down. According to ING: ‘The pressure of turnover is higher per squared meter’. In 2007 the turnover per squared meter was €3500 where it is just around €3000 in 2015.

Concluding, you can say that the customers are more divided into the low and high segment and that a mid segment is less important. The customers want high quality, luxurious products or they want low quality, cheap products. The reason for this division is a result of the financial crisis in 2008. Furthermore, the retail stores that are not applying the e-commerce in a good way are suffering. An example of a retail store that applies the e-commerce very well is ‘Zalando’. They do not even have a physical store but just an online webshop and their turnovers are growing each year. As a retail store, if you want to survive, you should have a good e-commerce and/or focused on either the low-segment of the high segment.