Retailers ‘running out of time’ in the face of insolvency in the New Year, experts claim
While a deal to rescue Toys R Us has been agreed, Begbies Traynor predicts a marked rise in insolvencies in the New Year
MANY retailers are “running out of time” in the face of a perfect storm buffeting the sector, insolvency experts say.
While a deal has been agreed to save Toys R Us from administration today, BEGBIES TRAYNOR predicts a marked rise in insolvencies in the New Year.
And it says household names will be among the many casualties.
Research by the firm shows 43,677 UK retailers are showing signs of “significant” financial distress as consumer spending slows. This is a 22 per cent rise on December last year when 35,845 found themselves in a perilous position.
But Julie Palmer — a partner and retail expert with Begbies Traynor — said it was unusual to see so much distress before the make-or-break Christmas trading period.
Pressure on the sector is set to rise further at the quarterly rent day, which falls on Christmas Day.
Ms Palmer said: “I fear UK retailers are now in the midst of a perfect storm.
“November’s interest rate decision, rising inflation, falling real wages, reduced credit availability and increasing Brexit uncertainty are all combining to put unprecedented strain on household budgets this Christmas season, pushing consumer confidence to an all-time low.
“Although this week’s mild weather might very well encourage a few extra shoppers to leave the fireside for a day of last-minute spending, I’m afraid it’s probably too little, too late.”
At the beginning of December troubled Toys R Us announced it was set to close a quarter of its stores.
Today a last minute deal has been agreed with the Pension Protection Fund, which will stave-off the threat of administration for now.
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Many large businesses are increasingly struggling to pay for expensive gold-plated pension schemes, which were commonly offered in the 1960s, 1970s and 1980s.
Toys R Us' troubles are the latest in a long-line of difficulties that have affected the high street over the last 10 years.
Back in 2008, kids' favourite Woolworths closed it doors for the final time - with the loss of 30,000 jobs.
JJB Sports - which was founded by former Wigan Athletic chairman Dave Whelan - collapsed in 2012 with debts of around £150million.
The same year, electronics store Comet also collapsed.
Department store BHS entered administration in 2016, with former boss Sir Philip Green coming under for selling the business for just a £1 a year before it collapsed.
Green eventually agreed to stump-up £363million to plug part of the retailer's £571million pension black hole.
Fashion brand American Apparel closed 12 of its 13 stores in the UK right before Christmas last year with 150 staff losing their jobs.
Last month, Marks and Spencer said it would be speeding-up its plans to close 30 stores across the country due to tough trading conditions.
Gone but not forgotten
Many loved household names are no longer with us.
2008 - Woolworths collapses with debts of around £400million. Some 800 stores are closed and 27,000 staff members lose their jobs.
2012 - JJB Sports closes having racked-up debts of £150million
2012 - After 80 years of trading Comet closes all 236 of its shops
2012/2013 - Music chain HMV, Clinton Cards, camera shop Jessops, and video rental store Blockbuster all enter administration
2014 - Phones 4U - the phone shop pulled the plug with the loss of more than 5,000 jobs
2016 - BHS hits the wall with a pension balck hole of £571million
2016 - Mark and Spencer annouces plans to close 30 stores across the country
It's not all bad news - high street tailor Austin Reed collapsed in 2016 but was resuced by Edinburgh Woollen Mill just seven months later.
Ms Palmer added that the “increasingly frantic” promotional activity witnessed on the high street this week has not had the same effect on consumers as it once did — and many retailers have “all but run out of time”.
She said: “Shoppers are savvier than ever and prepared to search online for the best deals having grown wise to the gimmicks and discounts on offer in store.”
The future of the British arm of Toys R Us will be decided today when creditors vote on a restructuring deal designed to save most of its stores.
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The Pension Protection Fund is asking for an upfront payment of £9million in return for supporting the deal.
A restructuring would allow the retailer to close around a quarter of its stores, with the savings generated giving it a chance of survival.
Failure would see 3,200 job losses.
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