UK retail sector expands by over 7%, Creditsafe finds

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New research from Creditsafe, the business intelligence expert, reveals that the retail industry in the UK has picked up dramatically in the last 12 months with over 7% more active limited companies businesses in operation than at the same point in 2013. In the last year the sector has grown by almost 10,000 businesses, with over 146,000 retail operations now active.

Despite well publicised challenges for the major supermarket chains this year, the financial health of the sector as a whole is looking positive with just 5.5% of the active companies operating in the industry rated by Creditsafe as very high risk or high risk. The number of companies in the highest risk banding is far lower than industries such as recruitment.

Companies engaged in the leasing of commercial retail property report a smaller volume of retailers attempting to renegotiate the terms of their original contract midway through the agreement than in previous years. In 2013 three quarters (75%) of companies leasing commercial space witnessed retailers attempting to renegotiate the original terms of their leases, in 2014 this figure has fallen to 65%. While still a significant figure it does point to increasing stability in the retail sector.

Firms leasing retail properties have also witnessed a decrease in the volume of late and defaulted payments. In 2013 59% of companies reported an increase in late and defaulted payments by retail clients; this figure has fallen to just 18% in 2014 indicating a healthier cash flow for these businesses.

Rachel Mainwaring, operations director Creditsafe UK, said: “The last 12 months have seen a significant uplift for the retail sector after a difficult 2013. The health of the retail industry is often taken as a barometer of consumer confidence, so these figures support the argument that people are starting to open their wallets and spend. There is however a divergence between the rate of growth in England and Scotland. The rate of expansion in Scotland is far lower on average than in England, which may indicate the referendum had an impact on business confidence and investment in this sector.”

On a regional basis Croydon has displayed remarkable growth in the retail sector in the past year, which can be expected to expand still further with Westfield/Hammerson’s £1bn redevelopment of Croydon town centre. Outside of London, Manchester has additional ammunition for its claim to be the UK’s second city with a higher number of retail start-ups than third ranked Birmingham. The research reveals that outside of Glasgow (23rd) and Edinburgh (44th) in the rankings of regional retail expansion Scotland is experiencing limited retail growth. Scottish locations dominate the top 10 centres of retail decline and low growth in the UK.

Creditsafe’s research reveals firms leasing commercial property to retailers are increasingly taking practical steps to mitigate the risk of defaulted payments as a result of tenants becoming insolvent. While in 2013 almost half (49%) of firms surveyed conducted no credit checks to establish the financial health of prospective retail clients, this year just 35 per cent of companies completed no credit checks on prospective tenants. Given the volatility in the sector it is important those leasing commercial property not only run comprehensive credit checks at the commencement of a contract, but throughout the contact lifecycle to ensure the tenant is solvent and capable of meeting their financial obligations.