Over 21,000 retailers face financial distress this Christmas

21,802 UK retailers are now suffering from ‘significant’ financial distress; 6 per cent higher than at this stage last year. Are revenues from Christmas sales enough to tide them over?

Christmas sales have done little to boost the financial performance of thousands of retailers, according to new research from business recovery consultancy, Begbies Traynor. While UK retailers continue to slash prices in a bid to attract last minute shoppers through their doors in the run up to Christmas, the benefits of these sales are yet to be seen, with 21,802 retailers now suffering from ‘significant’ financial distress; 6 per cent higher than at this stage last year.

Although a recent report from the Office for National Statistics showed that retail sales grew in November, today’s data suggests that this momentum may not have carried through into December. Issues including prolonged discounting, tiny margins, more staff and related costs due to the higher national living wage, and sterling’s weakness mean many retailers are cancelling out recent sales growth.

Of the retailers in a state of ‘significant’ financial distress, 97 per cent are small and medium sized businesses who lack the marketing budgets and economies of scale of their larger rivals.

“Retailers were hopeful that 2016 would be a bumper year for Christmas sales, after reports that credit card debts hit a record high in October and household savings dipped to their lowest level since 2008, as consumers beat the Brexit blues through a spot of retail therapy. But with rising transport and fuel costs continuing to drive up the cost of living and drag down consumer spending power, it seems that this momentum has not continued into the festive period, with levels of financial distress among retailers now even higher than last year,” Julie Palmer, partner and retail expert at Begbies Traynor said.

With the sector’s Quarterly Rent Day just around the corner, retailers across the country will be pinning all their hopes on a last minute sales surge from shoppers who have left it too late for online deliveries, to help tip them over into the black, Palmer added. “Unfortunately, without a strong end to 2016, I’m afraid many smaller retailers in particular may not survive much beyond the January sales.”

In November, Begbies Traynor’s red flag alert warned that 32,722 retailers have a one-in-three chance they will cease trading within the next three years. This was an 8 per cent increase from the same time last year.

Compounding the issue, a confidence check survey by commercial insurer RSA reveals that 71 per cent of UK SMEs expect their revenues to either fall or stand still in 2017. According to the Chartered Management Institute, the one thing holding smaller businesses back in competitive times like Christmas is poor management skills. A study by the trade body revealed that nearly half  of businesses founded in the UK in 2011 had failed by 2014, with incompetence and bad management to blame for 56 per cent of the closures. In their struggle to stay afloat, only two in five SMEs were found to have invested in management training, compared to 89 per cent of businesses with over 250 employees, giving the bigger companies yet another advantage.

In the battle of the brands, small and mid-sized businesses are often seen as ‘Davids’ to the larger, more established Goliaths of the retail world, according to Criteo’s Thomas Jeanjean. “Whilst it is true that smaller retailers have the agility and resourcefulness of the boy in the story, it has not been as easy for them to take their giants down,” he explained.

“This is set to change. Now, new technology means that (smaller businesses) are becoming equipped with the tools they need to grow. Performance marketing in particular is one way for these companies to compete with larger counterparts on a global level, at a relatively low cost of entry.”

In terms of online retail during the holiday period, e-commerce consultancy, Salmon identifies a Black Friday-style upsurge in mobile orders this Christmas, with on average a 26 per cent rise in mobile traffic compared to 2015. UK consumers are now digitally shopping on average nine times a week and this is expected to rise over the next few days leading to Christmas, potentially levelling the playing field for smaller businesses on the 21st century’s great equaliser: the internet.

Praseeda Nair

Praseeda Nair

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.

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