Nation bracing itself for retail insolvencies

The number of retailers unable to pay their quarterly rent and left having to seek insolvency advice could be set to increase as September 30th.

The end of the month marks one of the four "quarter days" each year on which retail firms often pay rent on their premises.

The last quarter day – June 30th – saw the largest wave of retail administrations since the recession peaked, according to data from insolvency industry trade body R3.

It noted that the latest deadline could bring about a similar situation, with many retail enterprises struggling to make payments on rent for their stores, warehouses and offices.

Last quarter's payment date saw home improvement giants Habitat and Homeform and fashion retailer Jane Norman dip into administration.

There are fears that the September and December deadlines could claim similar scalps if firms are not careful about their finances.

According to R3, retail sales in August were down 0.1 per cent over July's figures, which could suggest there may be a few industry players likely to struggle to meet their rental responsibilities.

President Frances Coulson explained that quarter day is feared by firms who have overstretched themselves in order to stay afloat.
"Last time round, the rent day identified many retail businesses that had survived the recession, [but] did not have the funds to meet their rental obligations," she said.

"They had depleted their reserves to stay afloat and had no contingency plan for additional costs, unexpected outgoings or a fall in sales."

The expert added that there has been little to suggest that this quarter will be any different after a difficult period of trading.

"Over the preceding three months we have seen little improvement in retail sales, economic growth or consumers increasing their expenditure. For that reason we are likely to see further retail casualties," Ms Coulson predicted.

Recent figures from the British Retail Consortium showed that the retail sector spends more money than any other industry on staff training, with £1,275 per person typically being spent every year.

However, the latest Business Distress Index from R3 shows that approximately one in four retailers are having cash flow issues.

Almost three in five (58 per cent) of firms have experienced a drop in profits, which is 24 per cent higher than the cross-sector average.

Meanwhile, almost one in ten (eight per cent) believe they could need the services of insolvency practitioners in the next year.

"The pressure on retailers is two-fold," Ms Coulson added. "As consumers have less money to spend, stores are discounting their prices to get people through their doors; this is at a time when inflation and rising commodity prices have increased costs.

"Given the nature of the retail business, it is extremely worrying that one in four is experiencing cash flow difficulties. This suggests that many are holding a large amount of stock or have slow moving stock."

The one plus point for those who do avoid the need for bankruptcy advice this quarter is that Christmas is now just a few short months away.

Ms Coulson stated that those given another chance by their lenders would be hoping that the festive season can give them an opportunity to get back into the black.

However, she noted that consumers will probably spend less on Christmas this year, which could mean retailers will struggle for some time to come.