Insolvency Expert Warns Of Further Casualties
With the previous ‘quarter day’ in June seeing the largest wave of retail administrations since the height of the recession, insolvency experts are warning that this month’s deadline on 29 September is likely to spark another wave of insolvencies.
Insolvency trade body, R3, is concerned that the quarterly rent payment, a hefty outgoing for struggling firms, may push more companies into administration. There has been little sign of improvement with retail sales in August falling 0.1 per cent from the month before and a number of high street casualties in the last three months including Habitat, Homeform and Jane Norman.
Andrew Walker, chair of R3 in Yorkshire and partner at Irwin Mitchell, comments: “Last time round, the rent day identified that many retail businesses had survived the recession, but now did not have the funds to meet their rental obligations. They had depleted their reserves to stay afloat and had no contingency plan for additional costs, unexpected outgoings or a fall in sales.
“Over the preceding three months, we have seen little improvement in retail sales, economic growth or consumers increasing their expenditure. For this reason, we are likely to see further retail casualties.”
R3’s latest Business Distress Index revealed that nationally, the retail sector was experiencing significantly higher signs of distress that any other sector, with retail businesses more likely than any other to be concerned about their debt levels (41%). A quarter of retailers reported having cash flow difficulties, while nearly one in ten (8%) of retail businesses believed they would enter insolvency over the next 12 months. Six in ten (58%) of retailers had experienced a decrease in profit; 24% higher than the cross sector average.
Mr Walker continues: “The pressure on retailers is two-fold. As consumers have less money to spend, stores are discounting their prices to get people through their doors; this is at a time when inflation and rising commodity prices have increased costs. Given the nature of the retail business, it is extremely worrying that one in four is experiencing cash flow difficulties. This suggests that many are holding a large amount of stock or have slow moving stock.
“For the businesses that are given another chance by the bank, hoping Christmas expenditure will see them return to economic health could be in vain. Consumers are curtailing their spending as the price of everyday essentials goes up and are likely to be spending less on Christmas this year.”