You might expect a bargain store that sells everything from shampoo to lightbulbs to be doing well in a cost of living crisis. Sadly, the opposite is proving to be true for Wilko.

There have been several signs of trouble. The variety discounter has not filed accounts since May last year, when it revealed sales had dropped by 7.3% to £1.4bn in the 12 months to 30 January 2021.

At the start of this year, it said 15 stores were earmarked for closure unless more favourable terms could be secured from landlords.

Then last week, it announced it had offloaded its distribution centre in Worksop, Nottinghamshire, to DHL for £48m in a sale and leaseback deal. At the time, Wilko CEO Jerome Saint-Marc promised the warehouse sale had provided “long-term stability”.

But yesterday it emerged the retailer is seeking an emergency £30m lifeline from lenders, having failed to agree an extension to its revolving credit facility.

“We’re taking this opportunity to review how we manage our ongoing financing to best trade through the current retail environment while continuing to invest in our future,” said Saint-Marc, in comments first reported by The The Sunday Times.

On one level, it’s a sign of the intense pressure on all retailers as they face a combination of soaring energy costs, wage inflation and weak consumer confidence. Last month, Wilko increased entry-level pay for store and logistics staff from £9.60 to £10 an hour, while also introducing a further 50p-an-hour hike for logistics staff until the end of March 2023, to get the business through the year’s busiest trading period.

There’s no sign of that pressure on wages abating, given Chancellor Jeremy Hunt announced the biggest-ever increase in the national living wage  – of 9.7% to £10.42 an hour – in last week’s autumn statement. 

The budget also brought some much-needed relief for the 400-store family-owned high street chain, in the form of lower business rates from next April. Bricks and mortar retailers are the biggest winners in a newly published draft ratings list for 2023, according to property consultancy Colliers. The average rateable value of shops is to fall by 10%, and in some cases up to 40%, with their business rates bills to drop proportionately.

The scrapping of so-called ‘downward transitioning’ in the budget also means retailers will benefit from lower bills as soon as the new ratings come into effect in April, instead of waiting for them to be phased in over three years.

As Colliers head of business rates John Webber says: “If a retail business fails in 2023 or beyond, it is unlikely to be because of business rates.”

But Wilko’s woes are a sign of a more worrying trend in the cost living crisis. Perhaps counter-intuitively, the conditions are not necessarily playing into the hands of variety discounters. As reported by The Grocer last month, it is not just all the major mults that are losing shoppers to the discounter supermarkets. In the 12 weeks to 2 October, Aldi also took £19.7m of spend from bargain stores such as B&M, Home Bargains and Poundland, according to Kantar.

Announcing Aldi’s latest results in September, its UK & Ireland CEO Giles Hurley noted: “Our basket now is bigger than it was before the pandemic, demonstrating our existing shoppers are consolidating their shop at our store. They’re spending more, they’re buying more and they’re using us as a first-stop shop.”

In the view of Shore Capital analyst Clive Black, it shows “people are becoming more precise in their shopping”. He points to GfK data last week, which revealed consumer confidence remained at near historic lows, despite a three-point increase in its measure to –44 for November.

It shows “how worried they are”, says Black. “Gas bills have doubled. Food inflation is at nearly 15%. An awful lot of people don’t have much money. They are thinking about how many shopping missions they are doing and going to fewer outlets.

“The lowest-income households haven’t got the money sitting around to pay their energy bills, so I can understand why some people are just going to get most of what they need at a limited-assorted discounter rather than shopping around.”

The challenge for the bargain stores is their sizeable non-food assortments are more likely to be seen by consumers as less than strictly necessary – bargain or otherwise. In the battle for consumers’ shrinking incomes, dedicated grocers remain essential, while a trip to a variety discounter is – unfortunately for Wilko – discretionary.

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