Credit, collections & insolvency news
Nearly 4,500 retailers are in critical financial distress as lacklustre Christmas sales performances, combined with persistent inflation and interest rates at levels not seen in decades, pile on the pressure according to a report by insolvency firm Begbies Traynor.
Critical financial distress rose considerably across the whole retail sector, with Food & Drug Retailers up c.10% and General Retailers up 13.7% on the prior quarter (Q3 2023: 3,981)
Almost 46,000 retail businesses in the UK are now in ‘significant’ financial distress, 7.5% higher than Q3 2023 (42,661) and 4.6% higher than the same period in 2022 (Q3 2022: 43,879). Over 20% of all retailers (915) in critical financial distress are online-only organisations
Further evidence of the growing financial stress in the sector can be seen in the rapid quarter-on-quarter growth in the number of businesses in significant financial distress, up 7.5% on Q3 2023, with 45,967 businesses now affected.
Julie Palmer, Partner at Begbies Traynor, said “There is no doubt about it, the last 12 months have been incredibly difficult for British retailers as an increasingly tough economic backdrop continued to pile on the pressure, with businesses that were only just standing on two feet again now feeling the pain this Christmas.
“And, after a year where consumers faced one of the worst cost-of-living squeezes on their wallets, the shopping bonanza many retailers were relying on this Christmas does not seem to have materialised, pushing many businesses close to financial ruin this winter.
After the boom during the enforced lockdowns of the pandemic, the data also highlights the shift away from online only retailers as consumers return to bricks and mortar stores, favouring an omni-channel offer. In Q4, the number of online only businesses in critical financial distress leapt 11.7% to 910, representing over 20% of all the businesses in critical distress, while 7,393 online businesses were in significant distress, up 6.48% on the prior quarter.
Palmer continued “What’s particularly interesting is the number of online only retailers now in critical financial distress. After the surge during the pandemic, it looks like the need to operate an omni-channel business model is more important than ever for retailers looking to succeed in this market.
“Sadly, after the year they have just been through, many business owners will be looking ahead to 2024 with a degree of hope, but there’s nothing to suggest it’s going to be any easier next year.
“After years of being addicted to cheap money, many of these businesses must now grapple with increased costs and another minimum wage hike in April, while converting their stock into cash to avoid quarterly rent day turning in to a fatal New Year hangover.
“On top of that, the situation is deteriorating for many consumers as energy bills and interest rates remain stubbornly high. It is likely this situation will only get worse when over 1.5 million UK households roll off cheap fixed rate mortgage deals in 2024.
“Ultimately, many of these businesses will have loaded up on debt during the good years and must now deal with the painful reality of higher interest rates at a time where demand is shrinking and margins are being eroded. So, plenty could fall victim to these pressures as the debt storm breaks across the country next year.”
| Sector | Q4 Critical Financial Distress (Number of Companies in Critical Financial Distress) |
Q4 Significant Financial Distress (Number of Companies in Significant Financial Distress) |
| Food & Drug Retailers | 1,343 | 13,231 |
| General Retailers | 3,133 | 32,736 |
