The quarterly rent day on Thursday is likely to trigger another wave of retail business failures, according to the insolvency trade body R3.
It says, however, that the number of insolvencies may be artificially low as many struggling retailers may be able to persuade creditors to let them continue trading with the prospect of Christmas coming up.
Habitat, Homeform and Jane Norman all fell into administration around the last quarter day in June and the current situation is little improved with retail sales in August falling 0.1 per cent from the month before.
Jeremy Oddie, North West regional chair of R3 and head of recoveries at Mitchell Charlesworth, says: “We are likely to see further retail casualties this quarter day but perhaps fewer than expected. We believe that many stores will manage to persuade banks or other creditors to let them keep going and take advantage of the Christmas trade. However with the price of essentials going up, consumers are likely to spend less on Christmas this year and it may not be the boost that retailers need.
“The December quarter day is likely to be very difficult and it could prove a low point for the retail industry as a whole.”
R3’s latest Business Distress Index revealed a quarter of retailers say they are having cash flow difficulties, while nearly one in ten (8%) of retail businesses believed they would enter insolvency over the next 12 months. Six in ten (58%) retailers are experiencing a decrease in profit; twenty-four per cent higher than the cross sector average.
Jeremy Oddie adds: “The pressure on retailers is two-fold. As consumers have less money to spend, stores are discounting prices to get people through their doors, at a time when inflation and rising commodity prices have increased costs. Our research shows that one in four is experiencing cash flow difficulties which suggests that many are holding a large amount of stock or have slow moving stock.”
September 29 is the traditional quarter day when rent payments fall due though in some modern leases this has been changed to October 1.