UK retailers experiencing financial distress

UK retailers are not in optimal health according to a new report, with many businesses experiencing ‘significant’ financial stress.

The results were published by Begbies Traynor’s Red Flag Alert research for Q2 2018, which monitors the financial health of UK companies. The finding saw 472,183 businesses facing tough times, up 9 percent from last year. General retailers saw an increase of 4 percent.

Regionally, businesses in the South of England continued to see the biggest deterioration in their financial health, with London being the UK’s worst performing region, where ‘significant’ distress impacted 118,367 companies in the capital alone (up 17 percent year on year, but down 1 percent compared to Q1 2018).

The findings corroborate the results from accountancy firm Moore Stephens, which in February posted research that 6,580 clothing stores (of 35,078) showed signs of financial distress representing 19 per cent of the UK’s fashion retailers.

Business rates are a major stress factor for clothing stores

According to Moore Stephens rising business rates (estimated to cost businesses an extra 5 billion pounds by 2021-22) has meant many fashion retailers have increased prices or lowered profit margins to meet these costs. This has been worsened by an increase in staff costs after the introduction of the National Living Wage.

The report also stated falling consumer spending and increased payroll costs have compounded the pressure fashion retailers have felt from the increased dominance of online retailers.

Julie Palmer, Partner at Begbies Traynor, said in company statement: “After a significant jump in financial distress during the first quarter of 2018, a period marred by weak consumer confidence, growing political uncertainty and the fallout from the ‘Beast from the East’, we may now be seeing tentative signs of stability returning to the UK economy in recent months.”

The future remains uncertain

“Looking forward, while there’s a chance this positive trend could continue, the outlook for certain industries is looking increasingly uncertain. The problems facing high street retail have been well documented of late, with the recent epidemic of CVAs and store closures being just the tip of the iceberg.

Ric Traynor, Executive Chairman of Begbies Traynor, commented: "There still remains a heightened level of distress among UK businesses and the slight improvement in the second quarter could yet prove to be temporary.”

Photo credit: Pixabay; Article sources: Moore Stephens “19 percent of fashion retailers show signs of insolvency,” published 8.2.18; Begbies Trainer "UK corporate health deteriorates 9 percent, leaving 472,000 businesses in financial distress” published 23.7.18.