- Nearly 4,500 UK retailers in ‘critical’ distress
- Online-only players under pressure
- Failures likely as ‘debt storm breaks’
According to the latest Red Flag Alert data from Begbies Traynor (BEG:AIM), almost 4,500 UK retailers are now in ‘critical financial distress’ as poor consumer confidence, sticky inflation and higher interest rates force consumers to pull in their horns ahead of Christmas.
New data from the insolvency and business advisory firm has revealed a rapid quarter-on-quarter rise in the number of retailers in ‘significant financial distress’ for the 10 weeks from 1 October to 14 December 2023 (Q4), up 7.5% on Q3 2023 and with 45,967 businesses now affected.
Begbies Traynor also found that over 20% of all retailers in critical financial distress are online-only players. After the Covid-induced online shopping boom, the marked shift away from online-only retailers as consumers return to bricks and mortar stores is clearly favouring omni-channel players.
RAISING THE (RED) FLAG
As pre-Christmas profit warnings from the likes of Halfords (HFD), Dr. Martens (DOCS) and embattled clothing brand Superdry (SDRY) demonstrate, hard-pressed consumers are being prudent on spending during the year’s most important shopping weeks, only compounding the pressures faced by the sector.
The so-called ‘Golden Quarter’ including Black Friday is the most hotly contested period of the year amongst retailers and those that suffer disappointing sales tend to cough up profit warnings when the festive updates are posted in January.
Novo Nordisk shares tank 20% after latest obesity drug disappoints
Begbies’ latest Red Flag Alert reveals that critical financial distress rose considerably across the whole retail sector in Q4, with the number of Food &Drug Retailers up roughly 10% and General Retailers up 13.7% on the prior quarter.
The number of online-only retailers in critical financial distress leapt 11.7% to 910 in Q4 to represent over 20% of all the businesses in critical distress.
FEELING THE PAIN
Julie Palmer, partner at Begbies Traynor, commented: ‘The last 12 months have been incredibly difficult for British retailers as an increasingly tough economic backdrop continued to pile on the pressure, with businesses that were only just standing on two feet again now feeling the pain this Christmas.’
And after a year when consumers faced one of the worst cost-of-living squeezes on their wallets, the shopping bonanza many retailers were relying on this Christmas ‘does not seem to have materialised, pushing many businesses close to financial ruin this winter’, warned Palmer.
Following a testing 2023, many retailers will be looking to 2024 with a degree of hope, but Palmer said there’s nothing to suggest it’s going to be any easier next year.
‘After years of being addicted to cheap money, many of these businesses must now grapple with increased costs and another minimum wage hike in April, while converting their stock into cash to avoid quarterly rent day turning in to a fatal New Year hangover.’
Palmer also pointed that many retailers will have loaded up on debt during the good years and ‘must now deal with the painful reality of higher interest rates at a time where demand is shrinking and margins are being eroded. So, plenty could fall victim to these pressures as the debt storm breaks across the country next year.’
