Over a third of shops face going under
Poor Christmas sales will tip many retailers over the edge
OVER a third of retailers are at serious risk of failure, according to financial health monitoring specialist Company Watch.
It said that 31,980 firms (38 per cent of all retail groups) had a health score of 25 or less out of 100. The consultant said that a further 26 per cent or 21,825 businesses had scores of 26-50, indicating that their finances are “sub-standard”.
The retail companies at serious risk of going under have combined liabilities of £19.8 billion, in terms of what they owe suppliers, rent, credit insurers, long and shortterm debt and others.
The consultant said that as one in four of the firms that receives a health score of 25 or less goes on to fail completely over a three-year period, retail stakeholders are looking at potential losses of up to £5 billion as the sector struggles.
Company Watch business risk adviser and insolvency expert Nick Hood said: “The scale of the retail financial risk means that urgent action by the Treasury to address the crippling business rates burden still borne by retailers is needed, but this alone will not rescue a sector that is dealing with unprecedented change in consumer habits and has far too many stores. After such a disappointing Christmas season, further failures and store closures are inevitable. It is going to be a bleak start to 2019 for retailers, their stakeholders and most vulnerable of all, their employees.”
Retailers are suffering due to a downturn in consumer confidence and spending caused by sluggish growth at home, the rising prospect of a global economic downturn, Brexit uncertainty hitting trade, investment and confidence, intense price competition from online and high taxes, such as business rates.
Hood predicted that there will be a spike in bankruptcies next year, because of the ongoing struggles retailers face, as well as both quarterly rents and VAT being due to landlords and the Treasury respectively at the end of January.
This month the likes of Superdry, Bonmarch, Primark and Asos warned of tough trading conditions, while Sports Direct founder and high-street billionaire Mike Ashley predicted that firms will fail.
Retail expert Springboard said that people are increasingly deserting bricks-and-mortar shopping locations and that it believes footfall fell 3.5 per cent for the last full shopping week prior to Christmas, compared to a fall of just 1 per cent for the same week last year.
Springboard said the flight away from the high street has accelerated with footfall thought to be down 3.2 per cent last week, compared to the 1.2 per cent decline it registered for the same period in 2017.
Visitor numbers to retail parks have gone into reverse, falling 2.8 per cent compared to a gain of 1 per cent last year. The decline in shopping centres remained constant, with footfall sliding 4.8 per cent.
On Friday the Office for National Statistics said business investment had fallen for a third consecutive quarter for the first time since the global financial crisis. The ONS said it fell 1.1 per cent in Q3.