Crisis of confidence hits retail sector as financial distress rises

There has been a 23% increase in ‘critical’ financial distress in the retail sector over the past twelve months, according to corporate rescue specialists Begbies Traynor.

The Red flag report survey measures corporate distress signals and monitors the numbers of companies experiencing difficulties, listing them as either ‘significant’ or ‘critical’ problems.

The 2011 Q3 survey found that the deteriorating economic conditions, resulting in the evaporation of consumer confidence has resulted in a 7% quarter on quarter rise in significant problems in the general retail sector.

Businesses classed as ‘significant’ are those with a court action or poor accounts. While critical problems, are those with CCJ’s totalling £5000 or more or wind-up petition related actions.

Ric Traynor, executive chairman of Begbies Traynor Group said: 

“A crisis of confidence did nothing to help retailers improve their prospects in the summer months – and unexpected factors such as the August riots and poor economic data are starting to take their toll. While many retailers will be relieved that the last quarter rent day in September passed almost without incident, the months leading up to Christmas could make or break a number of high street names, leading to insolvency in 2012.”

The survey also found that the distress is now affecting food retailers who had up to now been resilient to the economic downturn. Retailers in the sector saw a 12% increase in significant problems over the last three months.

Ric added:

““The levels of ‘significant’ financial distress in the Food and Drugs Retailing sector have risen by 12% in the past quarter – demonstrating that the downward pressure on the consumer is affecting even essential purchases and that consumers are battening down the hatches to protect  against the forthcoming financial storm.”

“We expect factors such as decreasing consumer confidence, fear and uncertainty over job security, the ongoing eurozone crisis and increased web based competition to manifest themselves in further insolvencies in the retail sector.”


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