Nearly a fifth (19%) of clothing retailers in the UK are showing “early warning signs” that they are at risk of going insolvent, according to accountancy firm Moore Stephens.
Out of 35,078 fashion retailers, 6,580 were found to show early signs of financial distress, such as a large fall in revenue or poor payment history.
Moore Stephens said a fall in consumer spending and growing payroll costs have “compounded” the pressure bricks-and-mortar fashion retailers have felt from the growth of online pureplays.
Several bricks-and-mortar retailers have either put up prices or lowered profit margins to meet increasing costs, particularly business rates.
Moore Stephens said this has been compounded by growing staff costs following the introduction of the national living wage. Online-only retailers have been largely shielded from both of these costs.
The firm added that consumer spending was at its lowest level for five years in 2017, and pointed out that online accounts for a greater proportion of sales.
Jeremy Willmont, head of restructuring and insolvency at Moore Stephens, said: “Clothing retailers have faced some of the most difficult trading conditions since the recession in the past year.
“Fashion retailers have been hit by the perfect storm of rising costs, falling consumer spending and increased competition. All three have heaped pressure onto revenue and made profit margins difficult to maintain.
“The increasing popularity of online-only retailers, who have more manageable bills for business rates and lower payroll, means that many fashion retailers will need to improve their ‘bricks and clicks’ offering if they are to thrive.
“Businesses that are able to adapt to changing trends and preferences will put themselves in a much better position to not only avoid insolvency, but to flourish.”