Wilko boss explains chain’s collapse: ‘We ran out of cash, and I am sorry’
The former chair of collapsed retail chain Wilko has told MPs that the retailer “ran out of cash” before its turnaround efforts were able to take effect.
The business and trade committee heard Lisa Wilkinson explain a host of challenges, not least from high rents and other costs, and defend the formula for dividend payments to her family’s holding firm after being told it looked like the “burgling of a failing business”.
She said a crucial loan fell through amid the fallout from the notorious Truss government mini-budget of September 2022.
“We were about to enter into secured lending arrangements with Macquarie when the 2022 mini-budget happened”, she explained.
“Literally we were in the midst of that, and at that point the interest terms on that loan were hiked massively and that became infeasible. So, that was a contributor.”
Ms Wilkinson spoke of her regrets about letting staff and customers down, tearfully explaining that she had not apologised to them directly earlier because she was advised not to by the administrators.
“I am devastated,” she had said earlier, before being pressed if she wanted to say sorry, which she did, after being told how taxpayers alone had been left to foot a bill worth £40m towards redundancy costs.
Lisa Wilkinson gives evidence to MPs
She also admitted she has no financial qualifications.
Under questioning Mark Jackson, who was chief executive from Christmas 2022, said Wilko could not secure the funding it needed but conceded its problems were largely of its own making.
He said its biggest mistake was not furloughing staff and cutting rents during the COVID pandemic.
The budget homewares retailer collapsed into administration in August, eventually leading to the closure of 400 stores and loss of more than 12,000 jobs after the failure of rescue talks.
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Poundland takes over 71 Wilko stores
Only a handful of roles were saved through the sale of dozens of sites to the owner of Poundland and B&M while The Range, another value retailer, bought Wilko’s brand and online assets.
But there was union fury over the build up to Wilko’s failure.
The GMB accused the owners of bleeding Wilko dry through dividend payments.
Union national officer Nadine Houghton told the committee the company struggled from a lack of investment and leadership over many years, culminating in a weak response to challenges posed by higher than average rents and tough competition from discounters.
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What happened to Wilko?
She said £77m was paid out in dividends – to a family holding company – over the past decade.
A document by administrators PwC, that was seen by Sky News, showed the Wilkinson family received £9m in dividends between January 2019 and February 2022.
The most recent shareholder payout, amounting to £750,000, was made in February last year.
The PwC estimate showed that unsecured creditors, who include suppliers, employees and the pension fund, were due to receive as little as 4% of what they are owed by Wilko Ltd.
The defined benefit pension scheme has a deficit of more than £50m.
Another witness at the committee hearing said it was clear that auditors – an industry lambasted over previous failures such as at Carillion and BHS – had failed in their duty.
Atul Shah, professor of accounting and finance at City University, said annual audit reports by PwC and, from 2019, EY consistently showed the company had both “passed and failed” the key test, with the directors’ cash flow predictions likely to have eased worries about whether Wilko remained a going concern.
He believed the sale of Wilko’s distribution centre in Worksop was used to combat auditor concerns in 2021/22 – a report that was delayed by six months.
Victoria Venning, partner at EY, said it would have broken its obligations to have offered any advice on that matter.
She defended its finding of a “material uncertainty” surrounding Wilko’s ability to continue as a going concern.
She also insisted the assumptions on cash flows were sufficiently challenged by auditors.
If you ever fly to Washington DC, look out of the window as you land at Dulles Airport – and you might snatch a glimpse of the single biggest story in economics right now.
There below you, you will see scattered around the fields and woods of the local area a set of vast warehouses that might to the untrained eye look like supermarkets or distribution centres. But no: these are in fact data centres – the biggest concentration of data centres anywhere in the world.
For this area surrounding Dulles Airport has more of these buildings, housing computer servers that do the calculations to train and run artificial intelligence (AI), than anywhere else. And since AI accounts for the vast majority of economic growth in the US so far this year, that makes this place an enormous deal.
Down at ground level you can see the hallmarks as you drive around what is known as “data centre alley”. There are enormous power lines everywhere – a reminder that running these plants is an incredibly energy-intensive task.
This tiny area alone, Loudoun County, consumes roughly 4.9 gigawatts of power – more than the entire consumption of Denmark. That number has already tripled in the past six years, and is due to be catapulted ever higher in the coming years.
Inside ‘data centre alley’
We know as much because we have gained rare access into the heart of “data centre alley”, into two sites run by Digital Realty, one of the biggest datacentre companies in the world. It runs servers that power nearly all the major AI and cloud services in the world. If you send a request to one of those models or search engines there’s a good chance you’ve unknowingly used their machines yourself.
Inside a site run by Digital Realty
Their Digital Dulles site, under construction right now, is due to consume up to a gigawatt in power all told, with six substations to help provide that power. Indeed, it consumes about the same amount of power as a large nuclear power plant.
Walking through the site, a series of large warehouses, some already equipped with rows and rows of backup generators, there to ensure the silicon chips whirring away inside never lose power, is a striking experience – a reminder of the physical underpinnings of the AI age. For all that this technology feels weightless, it has enormous physical demands. It entails the construction of these massive concrete buildings, each of which needs enormous amounts of power and water to keep the servers cool.
Sky’s Ed Conway at the data centre
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We were given access inside one of the company’s existing server centres – behind multiple security cordons into rooms only accessible with fingerprint identification. And there we saw the infrastructure necessary to keep those AI chips running. We saw an Nvidia DGX H100 running away, in a server rack capable of sucking in more power than a small village. We saw the cooling pipes running in and out of the building, as well as the ones which feed coolant into the GPUs (graphic processing units) themselves.
Such things underline that to the extent that AI has brainpower, it is provided not out of thin air, but via very physical amenities and infrastructure. And the availability of that infrastructure is one of the main limiting factors for this economic boom in the coming years.
According to economist Jason Furman, once you subtract AI and related technologies, the US economy barely grew at all in the first half of this year. So much is riding on this. But there are some who question whether the US is going to be able to construct power plants quickly enough to fuel this boom.
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For years, American power consumption remained more or less flat. That has changed rapidly in the past couple of years. Now, AI companies have made grand promises about future computing power, but that depends on being able to plug those chips into the grid.
Last week the International Monetary Fund’s chief economist, Pierre-Olivier Gourinchas, warned AI could indeed be a financial bubble.
He said: “There are echoes in the current tech investment surge of the dot-com boom of the late 1990s. It was the internet then… it is AI now. We’re seeing surging valuations, booming investment and strong consumption on the back of solid capital gains. The risk is that with stronger investment and consumption, a tighter monetary policy will be needed to contain price pressures. This is what happened in the late 1990s.”
‘The terrifying thing is…’
For those inside the AI world, this also feels like uncharted territory.
Helen Toner, executive director of Georgetown’s Center for Security and Emerging Technology, and formerly on the OpenAI board, said: “The terrifying thing is: no one knows how much further AI is going to go, and no one really knows how much economic growth is going to come out of it.
“The trends have certainly been that the AI systems we are developing get more and more sophisticated over time, and I don’t see signs of that stopping. I think they’ll keep getting more advanced. But the question of how much productivity growth will that create? How will that compare to the absolutely gobsmacking investments that are being made today?”
Whether it’s a new industrial revolution or a bubble – or both – there’s no denying AI is a massive economic story with massive implications.
For energy. For materials. For jobs. We just don’t know how massive yet.
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