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Being cheap can also prove nasty

Within the space of 30 minutes on Tuesday this week, Drapers learned that Icelandic investment giant Baugur had placed its loss-making value retailer MK One up for sale and that fellow value chain Ethel Austin had been placed into administration.

Baugur is believed to have had some interest in MK One, which fell a massive £17.4 million into the red last year, and is hoping to sell it as a going concern. Ethel Austin, too, is hoping it can continue to trade until a buyer is found, but it is believed to have been seeking a sale for some time now, to no avail.

These latest developments come hot on the heels of the fall of another value retailer, Select, into administration in February and the subsequent sale of half of its 250 stores to its management. According to one retail boss I spoke to this week, we should brace ourselves for more to come.

What the above proves is not that the value bubble has burst (see Primark and Peacocks for evidence of why that’s not true), but that just being cheap is not good enough. Also, the current market will punish a retailer harshly if it is not a well-run business in a well-defined market. But before we react with too much alarm to the news, it should be noted that these value businesses can’t really blame the credit crunch for their troubles, since they had been struggling well before the effects of that kicked in.

For good businesses, the prevailing tough trading conditions (which retail bosses and watchers say is here for the next year at least) could well mean dented profits and dented egos, but they will make it through to the other side. For not-so-good businesses, the shake-out has just begun.

Lauretta Roberts is Drapers editor

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