UK: A quarter of retailers at risk of collapse
More than a quarter of UK retailers are currently in the "caution" or "high risk" band of company failure in the next 12 months, according to research by insolvency trade body R3.
R3 found that insolvencies on British high streets have already seen over 21,000 jobs lost since the start of the year due to difficult economic conditions and the rise in internet sales.
Yesterday (24 June) was the most recent deadline for quarterly rent payments for commercial properties in the UK.
"Quarter day will always present a challenge to struggling retailers," said R3 president Lee Manning.
"Some of their leases were agreed during the good times and will have many years to run at very high rents. Negotiating with landlords is key to staving off insolvency, although of course directors must take care to avoid wrongful trading with regard to all of their creditors.
"More businesses are attempting to pay rent on a monthly basis or even negotiating turnover linked rents to help them manage their cash flow more effectively. This is more likely to apply to newer leases however."
Indeed, PwC insolvency partner and retail specialist Mike Jervis said that many retailers are still not being strategic in terms of how much space they'll need, and that expansion can lead to distress.
"At that point, if they are to maximise their chances of survival, it is essential for retailers to sustain open communication with all their stakeholders including suppliers, landlords, credit insurers and banks. For those that have already taken too many units they need to be realistic and plan ahead to liaise with their landlords as early as possible."
While Jervis emphasised that the June quarter is historically not a high point for retail insolvencies, the recent bad weather has meant "many fashion retailers have the wrong stock".
He said that while the worst may have passed for this year, "we expect there to be further pain for landlords in the second half of the year, and concentrated on specific parts of the retail market."
Manning is calling for retailers to adapt their businesses to "stay in the game" as the internet cannibalises bricks and mortar retail.
"We have seen a 12% drop in footfall on the high street in the year to April but this is doubly challenging when faced with too many underperforming stores held on long and inflexible leases."
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