After household names including Habitat, Jane Norman and Thorntons all either collapsed into administration or announced store closures, insolvency specialists have warned that the retail sector will continue to endure pain this year.
The news also followed a report from the British Retail Consortium (BRC) that said retailers were being hit by weak demand and surging prices for commodities and property, while employment costs remain high.
Brian Green, a restructuring specialist at KPMG who worked on the company voluntary arrangements (CVAs) for retailers Blacks and JJB Sports, said: “For the retail industry it is now a question of survival of the fittest.
“Companies with healthy cash flow, low debt levels and sustained customer demand will survive; conversely retailers facing a cash squeeze, large debt burdens, faltering sales and - particularly those with expensive and large store portfolios - will face a tough time.”
Green highlighted the most recent set of figures published by the Insolvency Service for the first quarter of 2011. This showed that retail administration appointments jumped by a staggering 55 per cent, with retail CVAs increasing by 30 per cent.
He added: “With the cushioning effects of suppressed interest rates having worn off, persistently worsening consumer spend is starting to crystallise in business failure. Unfortunately the fundamental economic indicators suggest that retail insolvency figures will continue to worsen this year.”
Green’s comments follow news that HomeForm, owner of KitchensDirect, entered administration and an announcement from TJ Hughes that it may have to appoint administrators. This comes on the back of HMV, Waterstones and video games retailer Game all reducing the number of stores.
Last month the BRC said numbers from the Office for National Statistics showed the weakest growth in sales values so far this year.
BRC economist Richard Lim said: “After the feel-good boost of April, which saw retailers benefiting from sunny weather and bank holidays, May was a return to reality. Consumers are overwhelmingly cautious about their personal finances and are reluctant to spend, particularly on big ticket items.”
R3 president Frances Coulson said the recent last quarter day for rent in June was the catalyst for many retailers’ collapse.
She added: “The high-street and the way consumers shop is changing and the rate of change has been sped up by the protracted economic downturn. The most significant change is consumers shift to the internet.
“Close to a third (31 per cent) are now shopping online more and this has definitely impacted on those retailers that have a heavy high-street presence.”
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