Private Equity and The UK High Street

The Hidden Forces Behind the Decline of the High Street

As iconic high street names like Debenhams, Topshop, and many others disappear from town centers across the UK, it's easy to blame the rise of online shopping, exacerbated by the pandemic. However, the roots of this crisis run deeper, with private equity firms playing a significant role in pushing longstanding retailers to the brink.

Private equity's investment decisions, such as loading companies with debt and cutting jobs in the pursuit of short-term profits, have been instrumental in the downfall of many high street stalwarts. Debenhams, for example, was taken private in 2003, sold off its properties, and then returned to the stock market in 2006 saddled with £1 billion in debt - a burden it was ill-equipped to handle as online competition grew.

Toys "R" Us, Maplin, HMV, and Poundworld are other examples of UK retailers that have fallen victim to this private equity playbook, with studies showing that companies owned by such firms are twice as likely to go bankrupt as publicly-listed ones.

The problem is not restricted to the UK. Over the pond in the USA, the same phenomenon has occurred and some of the largest retail bankruptcies have occurred where large brands have been in the hands of private equity.

However, there are signs that the tide may be turning. A growing number of private equity firms are now embracing more responsible investment principles focused on environmental, social, and governance (ESG) factors. This could help address some of the fundamental issues, like asset stripping and excessive debt, that have plagued the high street.

But change will not come easily. Regulators, financial activist groups, and ordinary investors with pensions and other holdings must remain vigilant and hold private equity firms accountable for their actions.

Ultimately, the demise of the high street is a complex issue, with private equity's role being a significant but often overlooked factor. By embracing responsible investing and greater scrutiny, the industry can help shape a more sustainable future for our communities.