Survey by Drapers and Labour MP reveals full extent of credit insurance woes, with fashion indies demanding Government tackles the issue
Government ministers are being urged to step in and help indies on the back of an exclusive survey about credit insurance by Drapers and Labour MP Simon Danczuk.
Danczuk, who in December raised in Parliament the issue of indies facing a credit crisis, will use the survey to push the issue up the government agenda and lobby to get it factored into the recently published Mary Portas review of the high street.
“The problems with the economy are well documented but not enough has been said about problems caused by the withdrawal of credit insurance. This is making a difficult situation a lot worse,” Danzcuk said.
“When you hear countless tales of people having to finance their stock off credit cards and personal savings because their credit terms have been pulled, you know this is not sustainable. Without decent credit terms I am sure many fashion indies will be forced out of business.”
The survey of 244 indies 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 (see graphs).
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 was 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 have responded to the survey by saying they are not reducing cover for the retail sector.
Mark Wyatt, director of risk information at the UK’s largest credit insurer, Euler Hermes, said: “Euler Hermes is granting £9bn worth of cover to retailers in the UK against the possibility of them becoming insolvent. That figure has increased month by month for the last eight months and so we are continuing to support to very significant levels.”
While he acknowledged that retailers were experiencing tough trading conditions, he said risk calculations were based on individual businesses rather than sector and called on retailers to be as transparent as possible about their financial practices in order to try to secure favourable credit terms.
“If a retailer is consistently paying a supplier two to three months late, then they need to understand that that is the reason why it is more difficult for them to get credit insurance,” Wyatt said.
If that was not the case, then he would encourage the retailer to talk to Euler Hermes so it could take an informed decision about that retailer’s risk level. “The more transparency there is, the more likely that we can support them.”
Simon Rockett, risk services man-ager at credit insurer Atradius UK, said difficulties in fashion retail were due to a fall in consumer confidence, the price of commodities, weather and shifting consumer behaviour.
He added: “Notwithstanding these facts, at Atradius we continue to maintain a constant, close dialogue with retailers, treating each on a case-by-case basis. This means that at any given point we are fully familiar with the pressure points within their businesses and can be as supportive as possible. We’d urge retailers to try and get as close to trade credit insurers as they can, sharing details on performance and planning – our role, as always, is to facilitate safe trade, not to prevent it.”
For brands, the issue means they are faced with increasingly risky cus-tomers with no certainty that uninsured stock will be sold or paid for.
Simon Poole, managing director of men’s young fashion brand Luke, said it was dealing with this by keeping close ties with all stockists, ensuring a smooth relationship and offering customers individual payment plans.
“Managing the money side is as integral as the design and selling side; it’s the third element people forget about,” he said.
Stacey Saunders, wholesale manager at womenswear brand Mina UK, said more indies were asking for increased credit terms because cash flow was so hard at the moment. “We are working with those clients to reach individual agreements that suit both us and them. Around 60% of the clients we work with, we have been working with from the very beginning, so trust with these is very important.”
She added that when it came to working with new clients, the brand was very reliant on information from its agents, who may have worked with those retailers before, to build up a picture of their credit history.
“I think with the whole process it is about people being open and honest and trying to have all the information before you make any decisions,” she said.
Poole saw the problems caused by the credit issue as a self-fulfilling prophecy, with indies cutting back on stock, then unable to make enough money to pay stockists. He said that government underwriting of insurance companies would be one of the only solutions.
Danczuk’s efforts in raising the issue of credit insurance with the Government follows a history of industry attempts to find a solution to credit insurance withdrawal in times of economic hardship.
In 2009, suppliers from across the industry joined forces with Drapers and the UK Fashion & Textile Association (UKFT), then the British Clothing Industry Association, to lobby the Government on the issue. In May that year, secretary of state for business, enterprise and regulatory reform Lord Mandelson launched a £5bn scheme to help suppliers deal with a lack of credit insurance.
The scheme, however, received a low take-up, a fact that was blamed on its tight restrictions and comparatively high charges.
Chancellor George Osborne said he would listen to proposals regarding credit help for small businesses and welcomed proposals on credit schemes for smaller businesses, saying the Government was looking at “other things that might work within the envelope”.
Since December, Danczuk has been looking at meeting key retail players for further discussion on solutions to the indie credit crisis. The MP told Drapers: “This is such an important issue. It’s such an important sector for the economy and in terms of jobs for young people.”
Credit calls: why the Government must act
Paul Turner-Mitchell Owner, 25 Ten Boutique in Rochdale
It’s a catch-22 situation. If credit insurance is reduced/withdrawn to brands or suppliers this, in turn, reduces credit terms offered and affects the viability of indies, bringing further high street decline. The Portas Review could, therefore, be a secondary issue to credit insurance for indies.
Clare Rayner Retail analyst
Smaller retail businesses cannot survive without cash flow. It is the responsibility of the Government to provide a framework which allows local businesses to create employment and opportunities – not to starve them of support in what are undoubtedly the most difficult trading conditions of the past 30 years.
Michael Weedon Deputy chief executive, Bira
This research lays bare the severity of the squeeze for fashion indies. The Government calls for greater lending from banks yet fails to recognise that this conflicts with its demands that they reduce risks. Suppliers, especially the up-and-coming brands, must recognise that their best hope of expansion lies with these independents.
Simon Berwin Managing director, UKFT
Small businesses have to find ways of working with their suppliers and have to be prepared to share information with them. They could look at weekly payment plans so that suppliers see money coming through, rather than waiting for large amounts at the end of a payment term. It’s all about working closely together.
‘High street’s marriage with retail is over’
Retail guru Phil Wrigley has taken a controversial perspective on the Portas Review. In his Harris Manchester College Lecture, The Future of the High Street, delivered yesterday, the ex-New Look executive chairman said efforts would be better spent reinventing retail and developing high streets as residential centres.
“I believe passionately in retail and I believe passionately in high streets. I just think their marriage is over and it’s time for them to go their separate ways. Now really is the time to face up to the facts around the bleak future for most high street retail. Maybe it’s because we couldn’t see an alternative to ‘town centres’ being ‘retail centres’ that has prevented us from doing so. But I believe reclaiming residential town centres, revitalised by permanent communities of residents, is just such an alternative.”