Retailers Buck the Trend with Pre-Christmas Fall in Insolvencies

Retailers Buck the Trend with Pre-Christmas Fall in Insolvencies

The UK’s retailers have been given a pre-Christmas boost in the run-up to the festive period, defying the fragile economy and rising business insolvency rates to enjoy a year-on-year fall in insolvencies. In November 2014, there were 108 retail insolvencies, compared to 140 for the same month last year. This represents a year-on-year decline of 22.9 percent.

This resurgence in the retail sector is set against a backdrop of a slight increase in the failure rates for the economy as a whole. The number of company insolvencies across all sectors rose 4.7 percent to 2,354 last month, compared to 2,249 for the same period last year.

However, the wider picture shows insolvency rates have stabilised, with the quarter to November running just 0.1 percent higher than last year.

Fewer companies entering administration or receivership

The Exaro Insolvency Index, which tracks the different categories of company failures across the UK, has shown a year-on-year rise in the figures for November in every type of company failure except administration and receivership.

The quarterly figures to November reveal the same pattern. While on the surface the rising failure rates may look bleak for British businesses, the drop in administrations and receiverships, typically employed in the early stages of insolvency, shows the tides could be starting to turn.

Retail hits targets despite food and fashion sectors falling short

A spokesperson for the accountancy firm that compiled the figures, said: “Generally the retail market overall has performed to, or thereabouts too, market targets for the sector overall in the run-up to the peak season. This is despite the dampening effect of the sales decline and profits warnings in the food sector.

“This robust performance is a combination of consumer confidence, early uptake in the property market, an increase in online sales and heavy promotional activity. Post-Christmas performance reviews should be good news for many, but it is doubtful that all fashion retailers affected by the unseasonably mild weather for most of October will have regained enough ground.”

A rise in online sales buoys retail companies

While in-store sales have remained largely flat, the pre-Christmas boost for many retailers has come from a spike in the number of online sales. In November, the proportion of online to in-store sales hit 30 percent for the first time. The Office for National Statistics put the figure at 11 percent in October, representing a year-on-year rise 7.5 percent.

There will also be some losers resulting from the increase in online spending. Those retailers who were unprepared for the surge in sales and have failed to get their deliveries out on time should not expect a bumper December, as many customers will choose to go elsewhere.

The economy continues to drag

Whilst there may be plenty of Christmas cheer on the high street, and even more so in the offices and distribution centres of the online retailers, the overall economy continues to drag.

Clive Lewis, head of enterprise at the Institute of Chartered Accountants in England (ICAEW), said: “An increase in insolvencies from last year is a sign that businesses are still recovering in a fragile environment.

“The chances of an export-led recovery are slim due to the ongoing malaise in the eurozone, a slowdown in growth in China and the recession in Japan. Economic growth in the UK remains reliant on the consumer. Next year, any rise in interest will pose one of the biggest risks to businesses.”

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