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Fashion retailers look healthier as numbers at risk of closure decline

The level of financial distress among UK fashion retailers appears to be reducing, according to research by corporate risk firm Begbies Traynor.

Data seen exclusively by Drapers shows that year on year the proportion of clothing, footwear and leather goods retail businesses classified as high risk has dropped from 65%, or 6,789, in the third quarter of last year to 60%, or 5,512 now. Begbies Traynor measures risk through ‘red flags’ such as debt or deterioration in financial ratios.

However, this comes as the total number of fashion, footwear and leather goods retailers dropped  12% over the past year, from 10,411 to 9,145, with closures almost entirely affecting small and medium-sized retailers with a turnover of less than €50m (£43m). The number of larger retailers trading was broadly flat.

Overall, large fashion retailers are now healthier, with the number at risk dropping 12% in the past three months, compared with a 1% drop for their smaller counterparts.

While welcoming the news as a potential sign of recovery in the sector, Julie Palmer, partner at Begbies Traynor, warned that smaller retailers were still vulnerable to issues such as “late payments and higher costs of funding”.

The recent government consultation on late payments was a welcome step as a result, she said.

Alistair Dickson, another partner at Begbies Traynor, added that while the market appeared to be improving, the next quarter could prove challenging.

“It’s a healthier market but I’d raise concerns. There are fewer small- and medium-sized retailers now because others have closed. This gives those remaining more of the market share when it comes to consumer spending, but it may not be sustainable.”

Dickson said a rise in successful payment protection insurance claims had created an anomaly in spending as consumers suddenly have some extra disposable cash, but he warned this could be a short-lived trend: “The next quarter will counteract the activity we’re seeing now as spending will

go down.”

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