The previous ‘Quarter Day’ in June’s saw the largest wave of retail administrations since the height of the recession, and this month’s deadline looks could spark another wave of insolvencies.
Quarterly rent payments fall in March, June, September and December and are a hefty outgoing for struggling firms. Three months ago Habitat, Homeform and Jane Norman all fell into administration, and the current situation is little improved with retail sales in August falling 0.1 per cent from the month before.
Frances Coulson, R3 President, comments:
“Last time round, the rent day identified many retail businesses that had survived the recession, did not have the funds to meet their rental obligations. They had depleted their reserves to stay afloat and had no contingency plan for additional costs, unexpected outgoings or a fall in sales.”
“Over the preceding three months we have seen little improvement in retail sales, economic growth or consumers increasing their expenditure. For that reason we are likely to see further retail casualties.”
R3’s latest Business Distress Index revealed a quarter of retailers say they are having cash flow difficulties, while nearly one in ten (8%) of retail businesses believed they would enter insolvency over the next 12 months. Six in ten (58%) retailers are experiencing a decrease in profit; twenty-four per cent higher than the cross sector average.
Frances Coulson continues:
“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; this is at a time when inflation and rising commodity prices have increased costs. Given the nature of the retail business, it is extremely worrying that one in four is experiencing cash flow difficulties. This suggests that many are holding a large amount of stock or have slow moving stock.
“For the businesses that are given another chance by the bank, hoping Christmas expenditure will see them return to economic health could be in vain. Consumers are curtailing their spending as the price of everyday essentials go up and are likely to be spending less on Christmas this year.”