UK: Slow growth in stores in 'financial distress' during Q4, but 2019 will be hard
The latest ‘red flag’ report from insolvency specialist Begbies Traynor shows that in Q4 481,000 UK businesses were in “significant financial distress as the winter freeze” hit home, but that there were fewer retailers than might be expected on the list. However, the company thinks that the number of retailers with problems will grow faster this year. And fashion retailers could be in the forefront of this.
In fact, real estate and property firms were the hardest hit - although that could be linked to the retail downturn with the spate of retail administration filings, CVAs and attempts by going concerns to renegotiate rents putting huge pressure on landlords.
Overall, the number of struggling business rose by almost 15,000 in Q4 with a 7% increase in real estate property firms in distress. And the number of businesses in 'critical' financial distress increased 25% year-on-year to 2,183.
But while retail wasn’t among the biggest sectors to suffer, it did see more companies struggling with a 2% increase quarter-on-quarter in the number of companies in significant financial distress.
That said, this might just mean a delay in the real pain that retail will endure. Q4 is traditionally “a strong cash trading period for most retailers, with any underlying problems in this sector likely to appear during Q1,” the report said.
Julie Palmer, Partner at Begbies Traynor, said: "After a period of relative stability, these figures for Q4 show that UK businesses have experienced a winter of discontent. Customers for traditional shop-front retailers are going online and the ongoing uncertainty surrounding Brexit is having an effect.
“2018 ended with reduced footfall and a reluctance to spend. Major businesses such as HMV went into administration during the Christmas period and others such as M&S and Debenhams reported poor Christmas trading. While the number of retailers in significant distress only increased slowly year-on-year since Q4 2017, we expect that this is due to heavy discounting giving retailers more cash and delaying their entry into danger. The industry should be braced for a tough start to 2019.”
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