21% hike in retailers in ‘significant’ financial distress

Nearly 43,000 retailers ended the first quarter of 2018 in a state of ‘significant’ financial distress, up 21% on the same period last year, as high profile administrations, unseasonably poor weather, declining footfall and weak consumer spending all took their toll on the sector, according to analysis by Begbies Traynor

The firm’s Red Flag Alert research for Q1 2018, which monitors the financial health of UK companies, found 42,958 retailers in ‘significant’ distress, compared to 35,555 in the first quarter of 2017.

Of these businesses, general retailers saw the largest increase in distress (up 25% year on year) with 30,668 companies ending the quarter in ‘significant’ financial distress, as consumer discretionary spending continued to fall - experiencing its worst quarterly performance since Q4 2012 - while high street footfall decreased by 8.6% in March alone, as considerable levels of snowfall kept many would-be shoppers at home.

In contrast, the UK’s food and drug retailers saw a less marked deterioration in their corporate health over the period, with 12,290 businesses in ‘significant’ distress; up just 11% over the past 12 months. Begbies Traynor points out that these products are more widely regarded as essential purchases by most households and are therefore less weather-dependent.

However, it is not only the retail sector that is showing worrying signs of stress. According to the data, all sectors of the economy which are reliant on consumer spending experienced an increase in financial distress over the period, as consumers continued to cut back on non-essential spending.

Excluding retail, the bars and restaurants sector had the most companies in ‘significant’ financial distress (up 9%, to 16,640 firms), followed by leisure and cultural activities (up 34% to 12,143 businesses), hotels and accommodation (up 13% to 4,947 companies) and travel and tourism (up 25% to 3,722 businesses in distress).

According to Begbies Traynor, considerable overcapacity within these consumer-facing industries has forced many businesses to implement aggressive pricing models in order to retain customers, while margins continue to be squeezed by higher costs associated with the national living wage and apprenticeship levy.

Julie Palmer, partner and retail expert at Begbies Traynor, said: ‘The UK high street has been having a torrid time of late, with the Beast from the East, growing competition from online rivals, higher staff costs, rising business rates and declining consumer spending, pushing many retailers to the point of no return.

‘However, there is a glimmer of hope on the horizon for the UK’s consumer-facing industries who have weathered the storm thus far. With inflation falling back, lower unemployment and real wage growth finally returning, we should hopefully see households start spending again as the weather improves.’

Report by Pat Sweet

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