Retail sector in serious distress

2 August 2011

The retail sector is experiencing significantly higher signs of distress than any other sector, with retail businesses more likely than any other to be concerned about their debt levels (41%), according to the latest research from insolvency trade body R3. Eight percent of those in the retail sector say that they are very likely to enter into insolvency in the next twelve months – this compares with a cross-sector average of two percent.

The latest figures show that six in ten (58%) retailers are experiencing a decrease in profit which is twenty-four percent higher than the cross sector average. Close to half (48%) of retailers have suffered a fall in sales volume, with a third (31%) saying that they have seen a fall in market share. A quarter of retailers say they are having cash flow difficulties – 9 percent more than the cross-sector average.

R3 President Frances Coulson comments:

"The pressure on retailers is two-fold. As consumers have less money to spend, stores are discounting their prices to get people through their doors; this is at a time when inflation and rising commodity prices have increased retailers costs. Given the nature of the retail business, it is extremely worrying that one in four are experiencing cash flow difficulties. This suggests that many are holding a large amount of stock or have slow moving stock.

"For those who are struggling, the recent quarter day will have put untold pressure on their finances and it is important that they seek advice. The next quarter day could prove difficult for many to weather as it falls at a time when most retailers will be replenishing their stock ahead of Christmas. Unfortunately this year cash-strapped consumers are likely to hold off until the Christmas sales before making significant purchases thus putting further strain on retailers."

The findings show that, across the sectors, the number of businesses experiencing distress has fallen however levels of distress are significantly higher amongst retail businesses. In fact, retail is one of the sectors which R3 members have reported the highest increase in new insolvency cases, amongst these the high profile cases include Habitat, TJ Hughes and Jane Norman.

Interestingly, the only sign of distress which is lower in the retail industry than the cross-sector average is when it comes to making redundancies. Just eight percent of retailers are making redundancies, but the cross-sector average is thirteen percent. However, seventeen percent of retailers have seen key personnel leave – against a cross-sector average of nine percent.

Coulson continues:

"In the retail sector personnel tend to be one of the main costs to a business so the fact that retailers are not making redundancies may suggest that retailers have already reduced their head count as much as they can. Although, the fact that almost one in five retailers have seen key personnel depart suggests that employees are jumping rather than being pushed."

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