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Business insolvencies are forecast to increase as the cost-of-living crisis weighs on shoppers’ budgets
The deepening cost-of-living crisis in the United Kingdom is likely to result in further retail failures over the year, Bloomberg reported, citing experts at credit insurance firm Atradius.
Britain has seen an increase in retail collapses in 2022, including high profile insolvencies such as Joules and Made.com.
Debt collection specialists at Atradius were cited as saying a jump in claims across retailer and consumer firms in 2022 might be a signal of growing uncertainty which has resulted in other businesses launching re-financings or broad restructurings.
Deals by Next to buy the Joules and Made.com brands could point towards further consolidation as smaller firms come under pressure from rising costs, said Erin Brookes, managing director and head of retail for Europe at Alvarez & Marsal.
“There are retailers and brands which came out of the pandemic with much weaker balance sheets and have now been hit by lower consumer sentiment, alongside any supply disruption and cost inflation,” she told the PA news agency.
According to Brookes, “These still have something to offer, so some of the larger, more robust groups will definitely see opportunities around.”
“That is likely to involve picking up businesses in rescue deals or even just opportunities, from other retailers or investment firms, to buy firms at what they feel is a low price given how much shares have dropped,” she suggested.
The report also indicates that over the past year, online retail giants Boohoo and Asos have both seen their shares plummet over 70% amid a slowdown in demand following the reopening of stores and pressure on budgets.
Christmas could be invaluable to many retailers as they head into a potential challenging start to 2023, when there is expected to be confirmation of a recession, Brookes explained.
“This Christmas is super critical as a lot of retail businesses have been suppressed throughout the year. If you have a good Christmas, then it gives them a solid footing, but if some under pressure retailers report weaker-than-expected trade, then they might be considering their next options,” she said.
Pressure on the retail sector has resulted in a 71% jump in payment claims compared with 2021, which was only worse in the construction sector, according to Atradius. A number of retailers, including THG, AO World and Asos, have reportedly seen cover for their credit insurance cut throughout the year amid investor concerns, particularly in the online retail sector.
“We’ll continue to monitor post-Christmas results but having already seen a couple of large failures in Q4, 2022, we expect the negative trend to continue into 2023,” warned the head of commercial at Atradius UK, James Burgess.
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