UK retail bankruptcies increase for third year running
February 2013 | DEALFRONT | BANKRUPTCY & RESTRUCTURING
Financier Worldwide Magazine
According to data held by business advisory firm Deloitte, the British high street continued to struggle in 2012 with the number of firms filing for bankruptcy increasing for the third year running. The year saw 194 retailers file for bankruptcy, with data suggesting that the majority of filings occurred during the first three quarters. There was a slight decrease in retail businesses entering administration in Q4 2012, compared to Q4 2011, as the number fell to 37, down from 42. Overall, however, the number of retail bankruptcy filings in 2012 represented an increase of 6 percent when compared to 2011 and an 18 percent increase on 2010.
The retail sector’s continuing economic difficulties saw many high profile businesses file for bankruptcy, with JJB Sports, La Senza, Comet and others all entering administration due to rising utility costs and weak demand caused by faltering consumer confidence. Lee Manning, restructuring services partner at Deloitte, said “These figures are a stark reminder of the difficulties which continue to face the high street. Constrained household budgets and the structural challenges facing the sector mean it is certain that we will see further distress next year.”
Deloitte’s report notes that while trading during the much anticipated Christmas period appeared to be stable, it was not impressive enough to stave off further bankruptcies throughout 2013. As Mr Manning notes “Consumer confidence remains fragile and where we have seen some respite through lower inflation, this has not translated into increased spending with many consumers preferring to pay down existing debt or save. Strong consumer spending growth is not likely to return any time soon which makes it essential that retailers address the fundamental issues affecting the industry – store portfolios and multichannel.”
Pay increases which have failed to keep in line with rising inflation have caused many Britons to become far more cautious with their money. However, despite the tightening of household budgets there are still opportunities for retailers to prosper. In early January, high street giants Next and John Lewis kicked off the post-Christmas reporting season by announcing increased sales, particularly from their online units. John Lewis reported a 44.3 percent increase in online sales for the Christmas period compared to 2011. Next, meanwhile, predicted annual profits between £611m and £625m for the year, with online sales for November and December improving 11 percent year on year.
Deloitte also warned companies that while a physical presence on the high street is still important, going forward many businesses will need to re-evaluate the number of stores they have. Accordingly, it would seem that 2013 will be punctuated by further closures. “As an increasing proportion of retail sales move to online and mobile, retailers need to consider how their stores support sales across all channels by offering flexible delivery or collection options, becoming a product showroom and developing brand engagement and loyalty,” said Mr Manning.
The Centre For Retail Research also noted that 2012 was the worst year for staff redundancies since 2008. More than 48,000 employees were affected by the failure of 52 medium to large-scale retail businesses. As a result of these bankruptcies over 4000 stores were closed. By way of comparison, 2011 saw approximately 24,000 employees made redundant when around 2500 stores closed. According to the Centre the huge jump in redundancies in 2012 was caused by a number of factors, specifically “a second economic downturn causing weak retail sales, the failure of a few retail giants which bumped up the figures for affected employees and stores; and the exiting of many companies that could survive a year or so of recession but not four years of low profits or losses.”
As 2013 unfolds, the outlook is equally gloomy. January saw the UK high street rocked by the news that photographic retailer Jessops, entertainment giant HMV, and DVD rental firm Blockbuster UK had all collapsed into administration. PwC were appointed administrators of Jessops, and on 11 January it was announced that all of the company’s 187 stores would close with 1370 staff made redundant. HMV’s failure comes after years of uncertainty for the company, which was eventually crushed under debts of £176m, putting 4123 jobs at risk. Deloitte was appointed as administrator of HMV and will also handle Blockbuster’s business in administration, which it intends to keep trading while it searches for a buyer. Blockbuster employs 4190 staff in over 500 stores.
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