Retail bankruptcies soar for third year amid weak demand and rising costs

High Street

The number of retailers filing for bankruptcy has continued to mount over the past three years, rising 6% last year compared with 2011 and up 18% on 2010, reports The Guardian.

Thousands of shop workers lost their jobs last year as a series of high street names collapsed into administration, battered by a combination of weak demand and escalating costs. Comet, JJB Sports and Blacks were just a few of the 194 retail failures over the year.

More retailers are expected to go bust in the new year, when it becomes clear that Christmas trading failed to make up for a dreadful year. All eyes are on the next few weeks as businesses start to report on recent trading. Initial signs suggest people left their Christmas shopping later than ever in a hope to bag bargains, while the subsequent sales rush has been short-lived.

Lee Manning, restructuring services partner at Deloitte, said: “Christmas trading appears to have been reasonable, though not spectacular and not enough to prevent insolvencies in the first quarter of 2013.”

With many households still struggling in the aftermath of the recession, Britons have become more cautious in their buying habits. Budgets were squeezed last year as pay increases failed to keep up with inflation. Even as inflation eased later in the year, many Britons chose to rebalance their household budgets rather than splash out on extravagant Christmas presents.

Manning said: “Consumer confidence remains fragile and where we have seen some respite through lower inflation, this has not translated into increased spending with many consumers preferring to reduce debt or save.”

At the same time, retailers have watched their costs rise, as rent and utility bills have shot up.

The gloom has hit all kinds of shops, from lingerie group La Senza to video games retailer Game and greetings cards shop Clinton Cards.

Last year’s figure of 194 administrations was up on 183 the previous year and 165 in 2010. Retailers’ problems were especially marked, coming in a year when the total for business collapses in all sectors fell 9%.

Retailers are among Britain’s biggest employers outside the public sector, and the wave of administrations has resulted in mass redundancies. The Centre for Retail Research estimates that more than 48,000 employees were affected by the 52 medium or large retail businesses that went bust last year.

Manning said retailers must adapt to a changing marketplace and cut down on their number of shops. “There will always be a need for physical retail space but at present, too many retailers have too many stores and 2013 is likely to be marked by further closure programmes, both within and outside of formal insolvency processes.”

Customers increasingly want to mix and match shopping on the high street, on their computer at home, and their mobile while they are out and about. Manning said: “As an increasing proportion of retail sales move to online and mobile, retailers need to consider how their stores support sales across all channels by offering flexible delivery or collection options, becoming a product showroom and developing brand engagement and loyalty.”

Retail was a black mark on an otherwise improving picture in terms of bankruptcies. Deloitte said almost all the sectors tracked in its analysis saw a decline in the number of business failures in 2012, including some of those most affected by the economic difficulties of the past five years.

The hospitality and leisure industry, for one, saw 21% fewer insolvencies in 2012, there were 9% fewer in manufacturing, and 7% fewer in property and construction. Apart from retail, only financial services and the mining and energy sectors saw notable increases. Across the board, the total number of administrations declined 9% in 2012 to 1,833.