UK retail shares are on the back foot after Toys R Us UK and Maplin entered administration on the same day, putting 5,500 jobs at risk.
Toys R Us UK has appointed Moorfields Advisory to wind down the company while Maplin has asked PwC to oversee its administration.
Moorfields said it still hopes to find a last-minute buyer for all or part of Toys R Us - the UK subsidiary of the eponymous US company of the same name.
The British toys retail chain had been searching for a buyer for several weeks before formally appointing administrators on Wednesday.
READ: Toys R Us intends to close about 20% of its stores as part of plan to emerge from Chapter 11 bankruptcy
“All stores remain open until further notice and stock will be subject to clearance and special promotions,” said Simon Thomas, a partner at Moorfields.
“We will make every effort to secure a buyer for all or part of the business.”
The news comes after its parent company filed for bankruptcy in the US and Canada last year with US$5bn of debt.
Maplin entered into administration after failing to secure a rescue deal in talks between its private equity owner, Rutland Fund Management, and billionaire Philip Day – the owner of fashion retail chains Jaeger, Peacocks and Edinburgh Woollen Mill.
“I can confirm this morning that it has not been possible to secure a solvent sale of the business and as a result we now have no alternative but to enter into an administration process,” Maplin’s chief executive, Graham Harris, said after the rescue talks broke down on Tuesday.
“During this process, Maplin will continue to trade and remains open for business."
Tough retail market
He said the company had worked hard over the recent months to mitigate the impact of a weaker pound following the Brexit vote, a decline in consumer confidence and the withdrawal of credit insurance.
Such challenging market conditions meant its quest to raise new capital had proved impossible, Harris said.
Like Maplin, Toys R Us had struggled in the face of a weaker consumer environment.
A shift in consumer habits away from high street stores and towards online shopping has also hurt sales at the two companies.
“In both cases the Amazon effect is all too clear to see, but there is more to it than that – there are retailers out there who are adapting and prospering,” said Neil Wilson, senior market analyst at ETX Capital.
"There are implications for competitors, retail market in general and we are seeing some read across today in the stock market off the back of it."
Rescue bid for Toys R Us 'still possible'
The existing business model of Toys R Us, which is built around large warehouse sites, left it unable to cope with the changing marketplace and the challenge of the internet, according to Brian Johnson, business recovery and insolvency partner at chartered accountants H W Fisher & Company.
Johnson thinks the best outcome from the administrators’ point of view - and that of the staff and creditors - will be that they manage to sell some of the 105 sites as going concerns, thereby preserving some of the 3,200 jobs.
“It is, however, conceivable that nobody steps forward and therefore we are looking at significant jobs losses, losses to landlords, suppliers, HMRC and other creditors, in particular the Pension Protection Fund, who will have to step in to ensure that the pension position of the employees and former employees is protected in part," he said, adding that the liability could run to many millions.
“Much depends on the liabilities within the business. Now that it is in administration a potential buyer would not have to pick up many of those liabilities so it is possible that a rescue bid could still be mounted. It may be that profitable stores can still be saved and sold off to different interested parties."
Mothercare, M&S and Debenhams shares slump
The collapse of Toys R Us and Maplin sent shares in other retail stocks lower including Mothercare PLC (LON:MTC), Marks & Spencer Group PLC (LON:MKS) and Debenhams PLC (LON:DEB).
Wilson said Mothercare must be looking over its shoulder with concern as there are some parallels with Toys R Us.
“As noted in January after a lacklustre Christmas trading performance, lower footfall is crippling the retailers that have failed to adapt and failed to convince shoppers that they offer something more than can be bought online,” he said.
“Other underperformers over Christmas like Debenhams and Marks & Spencer are trading lower today. Failures such as these cast a glaring spotlight on the sector and investors are making decisions on who is fit and who’s a bit lardy.”
Sainsbury's stands to gain from Toys R Us demise
Given that consumers have been increasingly buying toys online or in supermarkets, shares in J Sainsbury PLC (LON:SBRY) and Tesco PLC (LON:TSCO) jumped on the announcement from Toys R Us.
Wilson thinks Sainsbury’s stands to gain the most from the demise of Toys R Us through Argos.
On the back of Maplin’s failure, shares in rival Dixons Carphone PLC (LON:DC) are also sitting higher.