9% of UK clothing retailers currently exhibit early warning signs that they are at risk of going insolvent according to latest research by Moore Stephens Out of 35,078 fashion retailers analysed, 6,580 are showing early signs of financial distress, which can include a large fall in revenue and poor payment history.
Falling consumer spending and increased payroll costs have compounded the pressure fashion retailers have felt from the increased dominance of online retailers.
Consumer spending was at its lowest level for five years in 2017, with online spending making up a greater proportion of that spending than ever before. Rising business rates (estimated to cost businesses an extra £5 billion 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. However, online-only retailers have been largely shielded from both of these costs.
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. Over the last month, 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.
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. Fashion retailers 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.”