Trade credit insurer Atradius has called for greater financial transparency from retailers, as the firm expects further insolvencies in the sector throughout 2012.
The company, one of the biggest credit insurers to the UK’s fashion sector, said it expected the downturn in footfall, pressure on margins, the shift to online shopping and trade and rising overheads to fuel further retail insolvencies in the coming months.
A spokesperson for Atradius told Drapers despite the anticipated risk in the report, the credit insurer was working with retailers on a case by case basis. Being as open as possible was key to retailers’ suppliers maintaining cover.
She said: “The biggest deal is that we can’t write cover if we don’t have information and retailers keep their books shut. The message is to be as open as possible. We’re trying to keep trade going not stop it happening.”
According to the report, the situations of Barratts, Blacks and Peacocks have done much to underline a tough time for the fashion retail sector. In particular, fashion has suffered from higher commodity prices in cotton, while discounts to drive footfall have put margins under pressure.
Marc Henstridge, head of risk, Atradius UK & Ireland, said in a statement: “We’ve seen a significant increase in insolvencies in the past six months and unfortunately this seems set to continue. In an already challenging climate, cash flow crunch points such as energy bill and rental payment dates will prove too much for some retailers. With the next rental quarter payment due on March 25, we are anticipating that a raft of retailers will have no other option but to shut up shop.”
A Drapers’ survey of 244 indies earlier this year found that 77% had seen a change in brands’ credit terms over the past 12 months, the key changes being a decrease in limits and in the number of days given to pay.
As a result, indies are facing severe cash-flow issues, with some forced to change their buying patterns to accommodate the reduced credit facilities. There has been growing concern about trading conditions during the next 12 months, with almost a quarter (24.6%) expecting their turnover to decrease this year.
Credit insurers responded to the survey saying they are not reducing cover for the retail sector.