A downturn in footfall, the shift to online shopping and trade and rising overheads are creating a recipe for insolvency on the UK’s high streets, according to leading trade credit insurer Atradius.
Atradius’ retail risk underwriters revealed in a webinar on the subject this week, how pressure on margins is continuing to build, with restrictions on cash flow forcing more retailers into insolvency. The insurer predicts another raft of retail insolvencies in forthcoming weeks and months, highlighting the challenges facing retailers.
Marc Henstridge, head of risk, Atradius UK & Ireland, said: “We’ve seen a significant increase in insolvencies in the past six months and unfortunately this seems set to continue. In an already challenging climate, cash flow crunch points such as energy bill and rental payment dates will prove too much for some retailers. With the next rental quarter payment due on 25 March 2012, we are anticipating a raft of retailers will have no other option but to shut up shop.”
Atradius attributes the struggle on the high street to a number of factors, which have combined to create one of the most challenging trading conditions in decades.
Henstridge said: “Retail is a fast-paced, dynamic industry but, as it relies upon ever-shifting consumer behaviours and consumer confidence, it is extremely sensitive to change, which is what makes it such a good economic barometer.
“At present, online retail is taking pole position, reducing footfall for traditional retailers while supermarkets are also poaching market share from the high street.
“In addition, shops are increasingly used as a “showroom” for products but subsequent purchases are made online, after an online price comparison, particularly in the case of electrical goods and big ticket purchases.
“We are seeing, time and time again, the vicious cycle where stores discount to increase footfall, eroding profit margins and negatively impacting cash flow. And administrator reports demonstrate a clear pattern – large stock levels, combined with overheads and the downturn in trading, are all affecting cash flow simultaneously which is proving to be the final straw for many retailers.
“The year ahead will continue to bring trouble for retailers with the challenging trading conditions set to continue. It’s hard to see where any significant growth is going to come from, especially with further uncertainty caused by continuing job cuts, the euro crisis and the knock-on impact of other elements such access to credit, the stagnant housing market – which in turn, impacts home furnishing spend – and a cultural shift towards a ‘make-do-and-mend’ mentality amongst consumers who are delaying larger purchases.
“We are anticipating some peaks in retail during the year, driven by the Jubilee and the Olympics – but whether these will have a positive long-term impact remains to be seen.”
“According to Atradius, trade credit insurance has come into it’s own in this climate. One reason for the company’s popularity is its closeness to retailers, the company claims.
In the past year at Atradius it has undertaken a retail review, visiting over 200 of the UK’s leading retailers in order to gain deeper insight into their businesses.
“In the event of payment default, having high quality intelligence and real-time data mean we can identify deteriorations and improvements more quickly than ever, to the benefit of policy holders who can then respond appropriately, making the most of any opportunities arising,” said Henstridge.
“Retailers now acknowledge the sharing of information with trade credit insurers can help their survival. We urge those not already doing so to work as openly as they can with trade credit insurers – in the current economic climate, unfortunately, no information equals no cover.”