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Retail insolvencies jump 7% year on year

The number of retailers entering insolvency has increased by 7% in the past year, research by law firm RPC shows.

Insolvencies rose from 999 in the year to 31 March 2016/17 to 1,071 to the end of March 2017/18 as the retail sector continued to suffer from high cost base as sales shift ever more to online.

RPC said struggling retailers had been hit by the withdrawal of credit insurance, which can indicate financial distress. Sales at the UK’s top 20 ecommerce-only retailers jumped by 23% last year to £8.4bn.

At the same time figures from the British Retail Consortium show that footfall on the high street fell by 6% in March – the largest year-on-year decrease since 2010.

Tim Moynihan, restructuring and insolvency senior associate at RPC, said that many high street retailers have a cost base that remains stubbornly high: “It is hard for retailers in the UK to shed expensive excess space as their lease agreements restrict that option. Increases in the minimum wage and a rising rates bill also make it very hard to cut overheads to make up for sales lost to the internet.

“For under-pressure retailers, a CVA [company voluntary arrangement] may represent a neat solution to its problems for a short period of time. However, the reality is if it doesn’t address the structural weaknesses in a particular business, and if trading continues to decline, it is only delaying administration or liquidation.

“There is also a risk of CVAs being commoditised and turned into a product to be rolled out to retailers, rather than each one being the bespoke and flexible solution that the legislation envisaged – and creditors consequently being less supportive of it as a process.

“Creditors are wary about agreeing to a CVA unless they think the business has a viable business plan for it to continue. Ultimately, it will be the creditors who lose out when the business fails.”

 

 

 

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