UK retailers face further tests

8 May 2012
LONDON: Retailers in the UK are likely to face further challenges going forward, as the number of bricks and mortar chains entering administration continues to grow.

Figures from the Insolvency Service revealed the amount of retailers – including wholesalers and automotive dealerships – hiring administrators reached 135 in the first quarter of 2012.

This marked an increase from 79 in the final quarter of last year, or an uptick of 70%. The situation was more severe for the "retail trade" segment, or actual stores, where appointments rose by 180% to 67.

Peacocks, the apparel chain, La Senza, the lingerie group, and Blacks, the outdoor specialist, were among the well-known operators to have suffered this fate in 2012 thus far.

Richard Fleming, UK head of restructuring at KPMG, the business services firm, said a long term "barrage of negative economic pressures", from online competition to the recession, had made a huge impression.

"Our own pipeline of work suggests the High Street and the many companies which service the retail industry are running out of options, with administration – the option of last resort – now inevitable for some," he added.

In an indication of the specific difficulties pressurising the UK retail sector, the hotel category saw administration appointments fall by 50% quarter on quarter to 42, with transport down by 24% to 25.

Last month, the regular future-facing index of "retail health" published by KPMG and Ipsos, the research company, also stood at 77 points for the second quarter of 2012.

This reading constituted an all time low having declined by two points from the previous quarter, and was five points behind the total logged at the height of the financial crisis in 2009.

"Following unprecedented levels of promotions and discounts in quarter four of 2011 which had a severely detrimental impact on retailer margins, many businesses now recognise that this is not a sustainable strategy," said Tim Denison, director of retail intelligence at Ipsos Retail Performance.

"Rather than continuing to discount and offer promotions to the same degree in 2012, manufacturers and retailers decided to back the strength of their brands."

However, recent data gathered by Columino, the insights provider, showed 60% of shoppers intend to trim their retail spending, and another 15% hope to make drastic reductions, posing a major obstacle to any recovery.

"Only a very small percentage said they were planning on spending more," said Neil Saunders, Columino's managing director.

Data sourced from KPMG; additional content by Warc staff
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