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Retail insolvencies highest for 2 years

The number of insolvencies in retail during the first quarter of 2011 increased by 30 per cent compared to last year, according to new research.

Financial services firm Deloitte says that there were 60 retail insolvencies in the UK during Q1 compared to 46 for the same period in 2010, which is the highest quarterly number for two years.

Focus DIY was the latest major retailer to fall into administration as sales on the high street have plummeted since the start of the year.

Lee Manning, reorganisation services partner at Deloitte, commented: “It comes as no surprise that the retail sector has been worst affected. The sector is heavily reliant on buoyant consumer spending and the increase in VAT and the Government’s austerity measures are undoubtedly hitting the sector hard.

“In particular, smaller retailers are likely to be feeling the pinch more so than ever, as they often have little grounds to negotiate flexible credit terms with suppliers and may find it difficult to raise funding.”

Many retailers have been taking drastic measures to ensure their survival in the last six months, with JJB Sports completing a second company voluntary agreement and numerous strategic reviews being implemented as consumer confidence fails.

Across all sectors corporate administration increased by 22 per cent in England & Wales during the last quarter compared to Q4 in 2010 with most sectors seeing a rise in insolvencies.

David Hudson, Partner at Baker Tilly Restructuring and Recovery, commented: “The increases for Q1 are not surprising. Historically, this has been a tough quarter for businesses.

“However, companies that have used credit arrangements to continue to trade through 2010 are now nearing the end of their arrangements and their performance may not have been sufficient to continue to trade without extending or rearranging new agreements with their creditors and lenders.

“Looking ahead though, the recovery remains fragile. Evidence that businesses can service any current and, in some cases, additional debt requirements it takes on will be top of the agenda for lenders and stakeholders.”

Source : Retail Gazette

06 May 2011
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