UK retailers show insolvency warning signs

Nearly one in five clothing retailers is showing warning signs of insolvency, as rising costs and reduced consumer spending take their toll.

Given that Christmas and the New Year period are traditionally strong performing times of the year, the figures do not bode well for UK retailers.

Of more than 35,000 fashion retailers analysed by accountancy firm Moore Stephens, nearly 6,600 were found to display signs of financial difficulty.

Late payments, a poor payment history and substantial falls in revenue were all considered to be warning signs, while payroll costs have also increased.

The rise of online retailers has placed further pressure on the clothing sector, while consumer spending dropped to its lowest level for five years in 2017.

At the same time, a number of retailers have increased their prices or reduced their profit margins in order to cover the costs of rising business rates.

The introduction of the National Living Wage has also hit retailers hard, while their online competitors have largely avoided such cost increases.

A number of leading fashion retailers have entered insolvency in the last 12 months, including Store Twenty One and Jaeger, while East and furniture firm Warren Evens have both entered administration in 2018.

Major stores Debenhams and House of Fraser have also been forced to take action – the former has issued a profit warning, while the latter has looked to renegotiate store rental in a bid to cut costs.

The mix of falling consumer spending, growing competition and greater costs has made it difficult to maintain profit margins.

Figures from Springboard show that retailers saw the lowest level of sales and footfall for five years in January 2018.

A 1.6% drop in footfall and a 1.2% drop in consumer spending - according to Visa - mean overall high street spending fell by around 4%.

Businesses facing uncertain or financial difficulties should seek advice as soon as possible, or may wish to undertake an independent business review to assess their financial and strategic position.

By Phil Smith


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