Retail administrations up 102 per cent

As the recession deepens, the retail sector continues to bear the brunt of declining consumer confidence, with administrations up 102 per cent on the same period last year, according to analysis by business advisory firm Deloitte.

The total number of companies falling into administration in the first quarter of 2009 has risen by 20 per cent on the same period last year, and up one per cent from 916 in Q4 2008 to 922 companies in Q1 2009.

Dominic Wong, reorganisation services partner at Deloitte in Birmingham, said the retail figures demonstrate the impact the recession has had on the real economy and consumer confidence. 

“Economic uncertainty is causing consumers to hold back, pay off their debts and prepare themselves for the worst; discretionary spend is therefore being cut back,” he said. 

“As a result, the retail sector is being hit – the number of administrations has risen dramatically compared with the same period in 2008: Q1 2008 saw 56 companies fall into administration compared with 113 this time around.  We have seen a number of big names such as Zavvi, Mosaic, Stylo, Land of Leather, Whittards, and this week Bay Trading, collapse already this year, and there may be more to come.” 

Mr Wong said last week’s Budget announcement of an additional £5bn to the trade credit insurance scheme will, however, boost confidence in the sector and provide greater certainty for retailers. 

He added: “The announcement of JJB’s company voluntary arrangement (CVA) approval will prove significant in paving the way for other retailers to explore the alternative options available to them.”

According to Deloitte’s analysis, the hospitality and leisure sector is also taking a hit, as discretionary spend continues to decline, seeing a rise of 35 per cent in the number of administrations on the last quarter, and a rise of 22 per cent on Q1 2008. 

Mr Wong said: “Consumer confidence continues to wane, and combined with interest rates at an all-time low, it will be interesting to see how this plays out in the coming months.”

Deloitte’s analysis of the insolvency sector comes at the same time as the National Insolvency Service publishes its statistics, which reveal there were 1,738 corporate insolvencies in the first three months of the year, 27 per cent fewer than in the last quarter of 2008. 

Mr Wong said: “Today’s National Insolvency statistics highlight the extent to which companies are feeling the effects of the recession.  As it deepens, the number of company insolvencies, including compulsory liquidations and CVAs, rose 7.1 per cent on the last quarter and 56 per cent on the same period last year. 

“Whilst certain sectors continue to bear the brunt, no business is immune.  These statistics should act as a warning signal to UK businesses to review their balance sheets and act as early as possible to proactively manage cash, and may require difficult decisions to be made, whether they are over head count, other overheads and non-essential expenditure.”

ENDS

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