19% of UK fashion retailers risk insolvency says new report

Consumer caution and rising costs have combined to push more UK fashion retailers closer to insolvency. That’s the conclusion of a report from advisory and accountancy firm Moore Stephens.

More UK retailers are at risk of falling into administration - DR

It said that 19% of UK clothing retailers “currently exhibit early warning signs that they are at risk of going insolvent,” after it analysed over 35,000 businesses.

It found 6,580 showing “early signs of financial distress, which can include a large fall in revenue and poor payment history.”

The analysts blamed squeezed consumer fashion spending and increased payroll costs, saying these factors have “compounded the pressure [that] fashion retailers have felt from the increased dominance of online retailers.”

Consumer spending overall faced its toughest time in five years during 2017 and the impact on retailers was huge given that online spending made up a bigger percentage of total spend than ever before.

Rising business rates (and higher costs due to the pound’s fall) also meant many fashion retailers either increased prices or lowered profit margins to meet these costs, Moore Stephens said. This added a further burden after the introduction of the National Living Wage had already added to staff bills. However, online-only retailers have been largely shielded from both of these issues.

A raft of major names have gone into administration in the last year with East being the best known of the most recent. But other, massive businesses, including New Look, House of Fraser and Debenhams have also seen widespread speculation about their futures amid weak sales and talk of attempts to convince landlords to cut their rent costs.
And retailers including Topshop, Sainsbury’s and, again, Debenhams, have also been looking at staff cuts, reducing management roles, which are the most expensive of their in-store jobs and so would save the most money.

Jeremy Willmont, Head of Restructuring and Insolvency at Moore Stephens, said: “Clothing retailers have faced some of the most difficult trading conditions since the recession in the past year.

“Fashion retailers have been hit by the perfect storm of rising costs, falling consumer spending and increased competition. All three have heaped pressure onto revenue and made profit margins difficult to maintain.

“The increasing popularity of online-only retailers, who have more manageable bills for business rates and lower payroll, means that many fashion retailers will need to improve their ‘bricks and clicks’ offering if they are to thrive.

“Businesses that are able to adapt to changing trends and preferences will put themselves in a much better position to not only avoid insolvency, but to flourish.”

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