"Zombie” retailers feel the bite this winter as Austerity Britain takes hold

This Christmas, retailers across the country are succumbing to the cold as Austerity Britain gets into full swing, according to the latest research from Begbies Traynor, the UK’s leading business recovery practice.

The research, which measures corporate distress levels among UK businesses, found that “critical” financial issues are now facing almost 140 retailers – even though many are at the peak of their annual cash cycle – meaning 2013 is likely to witness a rising number of retail insolvencies, affecting not only single retail outlets but also several major national and regional retail chains

However the picture is bleaker still when retailers experiencing “significant” financial distress are included. According to this latest research the level of “significant” financial distress among UK businesses has increased by 35% to over 13,700 during the last quarter of the year (from 1 October to 17 December 2012), following difficult trading conditions in the run up to Christmas.

Those retailers that have experienced the highest increases in “significant” distress include specialists in books, news and stationery (up 85%), pharmaceutical and personal care (up 80%) and alcohol (up 38%), all of which have been impacted by further belt tightening among consumers forced to shop around for the best deals while cutting back on unnecessary spending during the festive period.

Julie Palmer, Partner at Begbies Traynor, commented: “Though the performance of national retailers is well documented, it represents just the tip of the iceberg with thousands of smaller and specialist retailers struggling to stay afloat in today’s Austerity Britain.

“While book sales usually peak in the run up to Christmas, the move by consumers to use traditional book retailers simply for window shopping before purchasing online at discount prices has seriously impacted this sector, which has already suffered considerably from the growing popularity of e-book readers.

“This practice known as ‘showrooming’, where shoppers visit high street stores to try a product before using a Smartphone or tablet to find the best price online is just one of the ways that cost-conscious consumers have embraced the new culture of austerity this Christmas.

“UK Consumers have been saving their shoe leather this festive period by shopping at supermarkets and large department stores, focussing on the perceived value of getting all things in one place while avoiding the cost and hassle associated with town centre parking. This trend has impacted the financial stability of independent chemists and alcohol retailers in particular who have struggled to compete against the supermarkets’ prices, low-margin promotions and the convenience factor for consumers of a one-stop shop.

“Whilst many of these zombie retailers may survive thanks to last minute spending before Christmas, with Quarterly Rent Day landing on 25 December combined with fierce competition and significant margin pressure throughout the January sales period as consumers tighten their belts after Christmas, we could well see a surge of new insolvency activity during the first quarter of 2013.

“Overall, we predict that a number of national or regional retail chains could fail in the next 12 months with a total of 140 companies already on our critical watch list, meaning they are unlikely to see the year out.”

Bucking the trend however are retailers specialising in home decor and household goods, which have seen an improvement in corporate health during Q4, as impatient homeowners unable to move up the property ladder instead focus their attention on renovating and redecorating for the festive season. Retailers selling furniture, lighting equipment, home decorations, hardware and paints have seen a combined decrease of 13% in significant distress levels in the last three months.

Julie Palmer, Partner at Begbies Traynor, added: “Although consumers have been cutting back where they can, most still want a better quality of life. Continued constraints in mortgage availability and rising house prices particularly in the South East mean that many homeowners simply cannot afford to move house and so are making the most of what they have through smaller ticket home improvements instead.”