Member Article

Retail industry in financial distress

Suffering in the retail sector is set to continue, after research found more signs of financial distress in this sector than any other.

The latest Business Distress Index has shown that 48% of retailers have suffered a fall in sales, and more than two fifths were concerned about their debt levels. A further eight percent were very concerned about their debt levels, and felt they were likely to enter into insolvency in the next 12 months.

Linda Farish, chair of R3 north-east and director of Recovery Insolvency at Newcastle-based accountants RMT says: “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, but 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 suggest that many are holding a large amount of stock or have slow moving stock.”

Unfortunately for many retailers, current trends are showing no signs of changing, with indications that consumers are likely to hold off until this years Christmas sales.

She continues: “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, in September, could prove difficult for many to weather as it falls at a time when most retailers will be replenishing their stock ahead of Christmas.”

Conversely, retailers are seeing lower levels of distress than many other sectors when it comes to making redundancies. Only eight percent of retailers are making redundancies, in comparison to the cross-sector average of 13 percent.

Linda added: “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.

“The fact that almost one in five retailers have seen key personnel depart suggests that employees are jumping rather than being pushed.”

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