Business recovery firm reports 35% rise in number of high street stores experiencing significant distress before Christmas
More than 100retailers are in a critical condition and will probably follow HMV and Jessops into administration, one of the UK’s top business recovery firms has warned.
Julie Palmer, a partner at Begbies Traynor, said 140 retailers were on the firm’s “critical watchlist” – defined as businesses that had received either a winding up petition or a county court judgment against them in excess of £5,000.
She added that the firm’s latest research also highlighted there had been a 35% rise in the number of retailers experiencing significant distress before Christmas, meaning 13,700 shopkeepers either experienced a sustained period of deteriorating finances or were in receipt of a county court judgment of less than £5,000.
Palmer declined to identify any of the 140 under immediate threat, but said they were a mixture of well-known names and smaller retailers. “Experiences teaches us that a high proportion [on the critical list] will fall into some sort of insolvency proceedings,” she said.
The health of the high street is key to employment data and consumer confidence. With some 3 million people working in the UK retail sector, it is the biggest private sector employer.
Palmer said: “Overall, the sectors that are most vulnerable include those affected by shoppers moving to online or digital formats, such as specialists in music, games, books, news and stationery along with the specialists that are most affected by the convenience and price-driven offering of the supermarkets, which includes chemists, health and beauty, and alcohol retailers.”
The gloomy outlook for the sector came as the music chain HMV followed camera-supplier Jessops into administration after lengthy battles by both companies to unearth business models that could compete with online retailers.
The problems have been mirrored elsewhere on the high street, where stores such as JJB Sports and Comet have collapsed in recent month.
Figures produced by RSM Tenon accountancy group show that in 2012 about 1,300 retailers became insolvent, meaning they could not pay their debts – a rise of 7% on 2011. Chris Ratten, the firm’s head of restructuring, said: “We expect this year to be worse, as those who have managed to teeter on the edge for the past few years will feel the full effects of the reduction of discretionary spending, fierce competition and reducing cash reserves.
“We believe 12,679 retailers have a high risk of insolvency out of more than 100,000 retailers nationally.” The number at high risk, he said, was 40% up on December 2011.
Michael Ingram, a market analyst with City broker BGC, said: “UK retail woes don’t end there. Disposable income in the UK is still being squeezed mercilessly: wage growth is running at less than half the rate of inflation (1.3% versus 2.7% on the consumer price index and 3.0% on the retail price index), while inflation in non-discretionary items, such as fuel and water tariffs, is running at over 6%.
“To top it all, consumer credit has, at best, flatlined over the last six months. One way or another, shoppers in the UK have less money to spend and they are increasingly circumspect of how they spend what remains. [For some retailers] the internet has brought unwelcome transparency to premium pricing.”
The slump has also left many high streets depressed, with the British Retail Consortium (BRC) estimating that one in nine town centre shops is empty, the highest level since the trade body began compiling data, in July 2011.
However, the BRC also recently produced more optimistic data. Its employment monitor, covering August to October 2012, showed the number of retail jobs grew by 2.9% compared with a year earlier, although the gains were in the grocery sector; jobs created in non-food stores fell.