Press Releases

25 July 2011

Number of retailers going bust jumps 25% in the last quarter

The number of retailers going bust* has jumped 25% over the last quarter, from 276 in Q4 2010 to 345 in Q1 2011, says Wilkins Kennedy, the Top 22 accountancy firm. (Latest data available)

Wilkins Kennedy says that insolvency in the retail sector is now at its highest level since Q2 2009, which shows how adversely the retail sector was impacted by the January VAT increase.

According to Wilkins Kennedy, these figures also highlight how retailers with a weaker offering or unsupportive lenders are continuing to collapse in the face of low customer demand and higher tax rates.

Comments Anthony Cork, Partner at Wilkins Kennedy: “Trading conditions continued to be tough for retailers in the first quarter of the year as the VAT increase to 20% took effect.”

“Disposable incomes are now lower as a result of both the Government’s austerity measures and higher inflation.”

“With confidence being low, an increasing number of consumers now prefer to pay down debts rather than spending their money shopping. This trend for consumers to deleverage is a substantial drag on retail sales.”

“Five years ago, people were withdrawing equity from their houses to fund shopping sprees. Now the opposite is happening. Consumers have cut back on spending in order to pay down mortgages.”

According to Wilkins Kennedy, the high and inflexible costs of retail property make it particularly challenging for retailers in an adverse economic climate.

Explains Anthony Cork: “Rents in the UK are relatively high in comparison to other countries. The structure of leases in the UK means that rents on the vast majority of shops can only ever go up. This doesn’t give retailers much flexibility when the going gets tough.”

Wilkins Kennedy says that because property costs are a major overhead for retailers, companies in difficulty focus on trying to renegotiate rents or dispose of unprofitable shops by initiating a form of insolvency procedure called a company voluntary arrangement or CVA.

CVAs generally allow companies to work out a deal with creditors whereby the company can continue to trade and debts can be paid back, in part or in full, over an agreed period of time.

Landlords often contest CVAs because they usually suffer worse losses than other creditors as a result of the restructuring of the company’s rental obligations. Some landlords are also concerned that CVAs are abused by retailers to break rental agreements and avoid paying debts.

Wilkins Kennedy says that a further 17 retailers have used CVAs to renegotiate their debts in Q1 2011.

Anthony Cork says: “If the economy continues to stagnate, retailers will struggle on and this means more CVAs on the horizon.”

Retailers that recently went into administration

• Habitat
• HomeForm (including subsidiaries Moben Kitchens and Dolphin Bathrooms)
• Jane Norman
• TJ Hughes

Retailers that have recently announced major store closure programmes

• Carpetright – 50 stores to close (on top of the 27 stores that had already been closed in previous 12 months)
• HMV – 40 stores to close
• Comet – 17 stores to close
• Mothercare – 110 stores to close

* Include Compulsory liquidations, Creditors' Voluntary Liquidations, Receiverships, Administrations and Company voluntary arrangements (CVA).

ENDS

Press Contacts:

Anthony Cork
Partner – Restructuring & Recovery
Wilkins Kennedy
Tel: 020 7403 1877
Mob: 078 8060 1962

Fay Israsena or Nick Mattison
Mattison Public Relations
Tel: 020 7645 3636
Mob: 079 6076 8787