• Almost 1,300 retailers were made insolvent in 2013
• Light at the end of the tunnel? Loans to the retail sector at highest level in over two years
Retail insolvencies have unexpectedly risen to their highest point in five years, as 1,287* businesses went under in England, Scotland and Wales in the last year**, up by 12% on the 1,149 insolvencies in the previous 12 months, reveals Wilkins Kennedy LLP, a top-25 accountancy firm.
Wilkins Kennedy says that although retail insolvencies have occurred across the sector, with bricks and mortar retailers squeezed by ecommerce players, there have been particular issues amongst small independent convenience stores. These are being squeezed out of business by the continued expansion of the big supermarkets continued push into the convenience store format.
Wilkins Kennedy says that the convenience store market is the one store format in which all of the major listed supermarkets continue to expand aggressively – pushing out "cornershops" and other independents. The big supermarket chains now have more than 2,300 convenience stores and are adding to these rapidly – with Morrisons the latest to step up activity in this area with plans to add 100 convenience stores a year.
Anthony Cork, Partner at top-25 accountancy firm, Wilkins Kennedy, explains:
"Unfortunately, many independent convenience stores struggle to match the quality of product of bigger retailers because they lack the scale of purchasing and logistics."
"Whilst the boom in the housing market and the overall recovery is helping big ticket retailers and DIY shops it does less to help the typical small-scale food and drink retailers."
Wilkins Kennedy says that any price war amongst the big UK supermarket groups (in response to the growth of foreign owned, deep discount supermarket groups) is likely to put further pressure on independent convenience stores.
Light at the end of the tunnel? Loans to the retail sector at highest level in over two years
However, Wilkins Kennedy notes that expectations of increased consumer spending as the economy recovers is resulting in more financial support for retail businesses. Lending to the retail sector in March 2014 reached £17bn, up from a low of £15.5bn in August 2013 and the highest figure in 27 months since November 2011.
Anthony Cork comments:
"Even though overall lending is decreasing, retailers' access to funding is on the up, this is great news for the sector which needs all the support it can get.
"After so many high-profile insolvencies, we hope that the increased lending will give the sector a much-needed boost. Unfortunately banks will be less inclined to lend to smaller retailers."
Wilkins Kennedy say that this is because smaller retailers may lack the collateral that banks prefer to lend against, they may also have a short credit history and the method by which many banks measure their risk-weighted assets means that it is more expensive for them to lend to small retailers than to very large companies.
* Including data from Creditors' Voluntary Liquidations, Receiverships, Administrations and Company voluntary arrangements in England and Wales and Creditors' Voluntary Liquidations and Compulsory liquidations in Scotland.
** Year end March 31st2014.