Following an extremely challenging first quarter for the UK high street, plagued by high profile administrations, unseasonably poor weather, declining footfall and weak consumer spending, new research from Begbies Traynor, the UK’s leading independent insolvency firm, reveals that nearly 45,000 retailers ended the period in a state of ‘Significant’ financial distress.
According to Begbies Traynor’s Red Flag Alert research for Q1 2018, which monitors the financial health of UK companies, 44,958 retailers were experiencing ‘Significant’ financial distress at the end of March 2018, up 21 per cent compared to the same period last year (Q1 2017: 35,555).
Of these businesses, General Retailers saw the largest increase in distress (up 25 per cent year on year) with 30,668 companies ending the quarter in ‘Significant’ financial distress, as consumer discretionary spending continued to fall – experiencing its worst quarterly performance since Q4 20121 – while high street footfall decreased by 8.6 per cent in March alone2, as considerable levels of snowfall kept many would-be shoppers at home.
In contrast, the UK’s Food and Drug Retailers, whose products are more widely regarded as essential purchases by most households and are therefore less weather-dependent, saw a less marked deterioration in their corporate health over the period, with 12,290 businesses in ‘Significant’ distress; up just 11 per cent over the past 12 months.
However, it is not only the retail sector that is showing worrying signs of stress. According to the data, all sectors of the economy which are reliant on consumer spending experienced an increase in financial distress over the period, as consumers continued to cut back on non-essential spending.
Excluding Retail, the Bars & Restaurants sector had the most companies in ‘Significant’ financial distress (up 9 per cent, to 16,640 firms), followed by Leisure and Cultural Activities (up 34 per cent to 12,143 businesses), Hotels & Accommodation (up 13 per cent to 4,947 companies) and Travel & Tourism (up 25 per cent to 3,722 businesses in distress).
According to Begbies Traynor, considerable overcapacity within these consumer-facing industries has forced many businesses to implement aggressive pricing models in order to retain customers, while margins continue to be squeezed by higher costs associated with the National Living Wage and Apprenticeship Levy.