Retailers Ended the First Quarter in a State of ‘Significant’ Financial Distress

Increase in corporate financial distress across all sectors reliant on consumer spending

The UK high street experienced extreme challenges during the first quarter due to high profile administrations, abnormal poor weather, diminishing footfall and weak consumer spending.  Recent research from a leading Independent Insolvency firm in the UK, Red Flag Alert, revealed that 42,958 retailers ended the first quarter in a state of ‘significant’ financial distress. This is up 21% compared to the same period last year.

Among these businesses, General Retailers observed a 25% increase in financial distress, the highest ever recorded with 30,668 companies facing ‘Significant’ financial problems at the end of the first quarter; as consumer spending declines – experiencing its worst quarterly performance since the 4th quarter in 2012 – whereas an 8.6% decrease in high street footfall in March, as potential customers where confined to their homes due to considerable levels of snowfall.

In contrast, Food and Drug Retailers in the UK whose products are often regarded as necessary purchases by most homes and are less dependent on weather observed a less marked decline in their corporate health within this period with 12,290 businesses in ‘significant’ financial distress, an increase by 11% within a year.

However, these signs of stress are not only seen in the retail sector. Data from the research showed that there is a rise in financial difficulties across all areas of the economy that rely on consumer spending within this period, as consumers continued to cut back on unnecessary spending.

Apart from Retail, the Bars and Restaurants sector had high records of companies in ‘Significant’ financial distress (up 9%, to 16,640 firms), followed by Leisure and Cultural Activities (up 34% to 12,143 businesses), financial distress in Hotels & Accommodation was up by 13% (4,947 companies) and Travel & Tourism (up 25% to 3,722 companies in distress).

According to Rick Smith, Managing Director of Forbes Burton:

“Lately, the UK high street has been passing through some tough times due to increasing competition from online companies,  rising business rates, higher staff cost and a decline in consumer spending; this has pushed a lot of retailers to a point they cannot return.

“We hear news almost every week of major retailers that are facing difficulty – from the recent administrations of Maplin and Toy ’R’ Us, to Carpetright closing up a quarter of its stores, as well as the recent CVAs of New Look and Select – showing that even well-known brands are failing to attract customers to take action.”

“Competition on the high street is stronger than ever, and sales volumes are expected to be flat at best this year; thus, retailers that are likely to succeed are those with strong multi-channel offering and sophisticated delivery options. Therefore, it will be difficult for any business that is not up to date with recent technology or have failed to invest in modernising legacy systems or increase their customer base to survive or catch up.”

“However, there is still hope for consumer-facing industries in the UK who have survived the storm so far. With the decrease in inflation, high rate of employment and real income growth finally returning, we hope to see households begin spending as before in the near future.”