Retail sector facing ‘another bloodbath’

Insolvency trade group R3 are expecting 23 more high-street names to disappear in the new year, adding to the 22 retailers that went into liquidation last Christmas.

"Rising unemployment and decreased spending in the lead-up to Christmas coupled with heightened creditor aggression in the new year leaves the retail sector facing another bloodbath."

Last year retailers deliberately delayed starting insolvency proceedings until the New Year, hoping they would regain money over the festive period, creditors also held back, hoping they would receive higher returns because of increased takings over Christmas. This year it is expected that increased unemployment and the January rise in VAT will prove to be the final straw for an additional retailers.

Apart from the obvious need to conduct a what if on your customers going bust (If a customer goes bust owing you £150k and you make a net profit of 5%, you will need incremental sales of £3m to recover lost profit), it is not difficult to spot the warning signs:
- ROCE below 10% and falling
- Net Margin below 2% and falling
- Credit period creep (taking longer to pay)
- Reguests for cash-based trade funding
- Lack of compliance
- Your own gut feeling….

The key is to recognise the obvious, and then get in ahead of the liquidator. Otherwise you come last in the list of favoured creditors (ie ahead of suppliers will be claims for VAT, Utilities, Corporation Tax, Council Tax, Banks, Liquidator Fee, Pension Fund, Employees, Landlords….)