Member Article

Retailers undergoing ?endurance test?

A higher proportion of retailers are facing “significant” financial problems, research from Begbies Traynor suggests.

The recovery specialists suggest 2013 could bring increased retail insolvencies, including major national and regional chains.

The retail sectors that have suffered the most financial distress are: books and stationary outlets; pharmaceutical and personal care; and alcohol.

Home improvement stores are said to have bucked the trend, benefiting from a lack of mobility on the property ladder. Christmas trading was “not exceptional” according to the British Retail Consortium, and director general Helen Dickinson suggested retailers were feeling the pressure from minimal year-on-year sales growth.

She said: “Overall, Christmas hasn’t been a boom time for UK retailers but it hasn’t been complete doom and gloom either.

“There are big variations in individual retail performances but, when the final sums are done, total spending is likely to be up modestly on last year though only broadly in line with shop price inflation.

“As always, there was a last minute Christmas rush. It came later this year because hard-pressed customers remain cautious, wanted to hold out for bargains and there was a final full shopping weekend immediately before Christmas that the calendar didn’t provide last year.

“Online sales growth accelerated as we took advantage of the investment that many retailers have made in giving us the flexibility we now demand around delivery options like click-and-collect and security. We now feel much more comfortable about putting our credit card number into our mobile phone, but overall this channel represents just over 10 per cent of total retail sales.

“But, generally, customers bought only similar amounts to last year. Sales were hard-fought and often driven by discounts so cutting into margins, though retailers worked hard to ensure they had the right products available, whether in store or online, and at the right prices.”

Julie Palmer, Partner at Begbies Traynor, commented: “Though the performance of national retailers is well documented, it represents just the tip of the iceberg with thousands of smaller and specialist retailers struggling to stay afloat in today’s Austerity Britain.

“While book sales usually peak in the run up to Christmas, the move by consumers to use traditional book retailers simply for window shopping before purchasing online at discount prices has seriously impacted this sector, which has already suffered considerably from the growing popularity of e-book readers.

“This practice known as ‘showrooming’, where shoppers visit high street stores to try a product before using a Smartphone or tablet to find the best price online is just one of the ways that cost-conscious consumers have embraced the new culture of austerity this Christmas.

“UK Consumers have been saving their shoe leather this festive period by shopping at supermarkets and large department stores, focussing on the perceived value of getting all things in one place while avoiding the cost and hassle associated with town centre parking. This trend has impacted the financial stability of independent chemists and alcohol retailers in particular who have struggled to compete against the supermarkets’ prices, low-margin promotions and the convenience factor for consumers of a one-stop shop.

“Whilst many of these zombie retailers may survive thanks to last minute spending before Christmas, with Quarterly Rent Day landing on 25 December combined with fierce competition and significant margin pressure throughout the January sales period as consumers tighten their belts after Christmas, we could well see a surge of new insolvency activity during the first quarter of 2013.

“Overall, we predict that a number of national or regional retail chains could fail in the next 12 months with a total of 140 companies already on our critical watch list, meaning they are unlikely to see the year out.”

This was posted in Bdaily's Members' News section by Tom Keighley .