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Expert warns of “bloodbath” on North East high streets

New research has found that well over a dozen household names look likely to disappear from North East high streets early next year, in a repeat of last year’s retail sector clear-out.

In the first few months of 2009, around 22 well known high street retailers went into insolvency – and now, according to a survey of insolvency trade body R3’s members, a further 18 household names await the same fate in the first few months of 2010.

Two factors have been identified as being the primary driver of this trend: Retailers are deliberately delaying starting insolvency proceedings until the New Year, to try to recoup the money they need over the festive period, and creditors of these failing businesses also hanging back, in the hope that they will receive higher returns due to increased takings over Christmas.

More than three quarters of the R3 members surveyed believe rising unemployment will result in less consumer spending, with 86% of them predicting this reduction in spend will be another factor pushing many retailers into insolvency in early 2010.

Signs of economic recovery are also unlikely to help retailers, with 85% of insolvency experts saying this will prompt creditors to start acting more aggressively, as assets rise in value.

Jim James, North East regional chairman of R3 and head of the Insolvency and Corporate Recovery Unit at Newcastle-based law firm Ward Hadaway, said: “Rising unemployment and decreased spending in the lead up to Christmas, coupled with heightened creditor aggression in the New Year, leaves the retail sector at risk of another bloodbath.

“While it would be comforting to think that the worst of the downturn is over, it’s worth remembering that insolvency peaks usually happen after a recession ends.

“The recent case of creditors agreeing a CVA in the case of Blacks Leisure shows there are insolvency and rescue procedures available to stave off liquidation, and these procedures could help many businesses currently in the ‘at risk’ zone.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .