Nearly 20 percent of fashion retailer showing signs of insolvency

A fall in spending and increased costs is taking a toll on traditional retailers, with 19 percent of fashion retailers showing signs of financial distress, according to research from accountancy firm Moore Stephens.

Out of 35,078 fashion retailers analysed, 6,580 are exhibiting early warning signs that they are at risk of going insolvent, such as reporting large falls in revenue and poor payment history, which has led to retailers to either lowering profit margins or raising prices.

Falling consumer spending and increased payroll costs have compounded the pressure fashion retailers have felt from the increased dominance of online retailers, states Moore Stephens.

According to the report, fashion retailers have been hit by falling consumer spending, which was revealed to have hit its lowest level in five years in 2017, with pressure continuing to come from online retailers, as online spending currently makes up a greater proportion of consumer spending than ever before.

Other elements that have made it a challenge for fashion retailers with physical stores have been rising business rates, import costs and an increase in staff costs after the introduction of the National Living Wage.

Jeremy Willmont, head of restructuring and insolvency at Moore Stephens said: “Clothing retailers have faced some of the most difficult trading conditions since the recession in the past year. They have been hit by the perfect storm of rising costs, falling consumer spending and increased competition. All three have heaped pressure onto revenue and made profit margins difficult to maintain.

“The increasing popularity of online-only retailers, who have more manageable bills for business rates and lower payroll, means that many fashion retailers will need to improve their ‘bricks and clicks’ offering if they are to thrive. Businesses that are able to adapt to changing trends and preferences will put themselves in a much better position to not only avoid insolvency, but to flourish.”

Last month, East were the latest high profile fashion retailer to enter insolvency, following on from Jaeger and Store Twenty One in the past 12 months. While other fashion retailers including Debenhams was forced to issue a profits warning after poor Christmas trading and House of Fraser has entered negotiations on store rents in an attempt to reduce their costs.