Figures from the Insolvency Service on the administration of wholesale and retail companies in Q1 2011 show a 70% increase from the 58 company failures in Q4 2010 to 99 in Q1 2011 and an 11% increase on the 89 businesses that failed during the same quarter last year (Q1 2010).
Barry Knight, head of retail at finance and business advisors Grant Thornton UK LLP, said: “The sector would have largely expected a rise in insolvencies, but the 70% increase on the last quarter will have come as a surprise and is worse than most commentators predicted.
“The high street has been struggling over the last few months with many retailers reporting some of their worst months on record. The pressures from high inflation – particularly in relation to commodity prices – and the rise in VAT and National Insurance contributions, have come through with full force this quarter and finally started to affect consumer spending, with retailers suffering as a result.
“The number of Company Voluntary Arrangements (CVAs) in the sector has also shot up by 85% on the last quarter and is up 62% on the same period last year. This is a clear reflection of the many high street retailers that have tried to restructure their company by disposing of some physical outlets in a bid to retain some value and save the business on the back of poor trading. This trend has been exacerbated by the move to online shopping. I expect this to continue and it is likely the numbers of CVAs will increase in the sector in the coming months.
“I do however believe the continuing low level of interest rates and relative support from the banking sector are still masking a lot of the fundamental structural issues retailers are facing – primarily the significant over-capacity on the high-street.
“The UK economy is still fragile and there is a high risk we will see a further acceleration of retail failures during the remainder of 2011. It remains important advice is taken on available options when a retailer faces difficulties, and relevant procedures are put in place sooner rather than later to avoid administration,” said Knight.