25 Ten Boutique boss leads calls for Government to help small businesses.
Independents are facing a credit crisis because of changes to payment terms due to the withdrawal of credit insurance.
Historically, indies have been given 90 days or more to pay for stock. However, due to the tough financial climate, a number of insurance companies are pulling credit insurance, meaning brands are now cutting the length of time indies have to pay for products by half or more. Others are asking for stock to be paid pro forma, having a detrimental effect on indies’ cash flow.
Drapers spoke to 24 indies this week and found that 15 have had brands change payment terms, while 12 predicted tighter payment terms would have a negative impact.
Paul Turner-Mitchell, co-owner of young fashion indie 25 Ten Boutique in Rochdale, intends to rally indies across the UK and take the issue to the Government, and this week arranged to speak to his local MP, Simon Danczuk.
He said that being forced to find [for example] £50,000 to £60,000 upfront put the viability of small businesses into question. Turner-Mitchell said: “You don’t have thousands of pounds sitting around, especially in the current climate.”
Turner-Mitchell added that, while the previous Labour government introduced a £5bn fund in the 2009 budget to help small and medium-sized businesses that had their insurance cover reduced, trading conditions and credit insurance terms have now diminished further.
“The Government must act quickly and work with us to help address the imbalance,” he said.
Turner-Mitchell added that issues of parking and charity shops brought up in Mary Portas’s government-backed review of the high street would be secondary if the credit insurance problem was not addressed. “If indies can’t get the credit then they’ll be struggling to survive, let alone thrive,” he said.
Roger Wade, founder of pop-up shopping mall Boxpark in London’s Shoreditch, said a “massive crisis with credit” looked likely.
Wade said: “Unless that is resolved, you are going to lose 50% of independents overnight. It needs to be addressed at government level. The Government needs to fundamentally underwrite the credit firms.”
He added that having to pay upfront for stock was “effectively bankrupting” indies.
Simon Poole, managing director of men’s young fashion brand Luke, said the situation would not get any easier for indies because the fashion industry was an unstable business for banks and insurers in the current climate. Poole added that up-and-coming or unknown brands could find it particularly tricky to gain credit insurance.
Michael Weedon, deputy chief executive and communications director of the British Independent Retailers Association (Bira), pointed out that credit insurance was an ongoing problem in the fashion industry due to the large size of the orders placed.
Additionally, he added that many banks have cut indies’ overdrafts.
In Bira’s quarterly sales monitor, 61% of respondents said their overdrafts had been cut.
Weedon added: “It’s something [the Government] should be aware of because it has a growth agenda, and both of these things would be against the growth agenda.”
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