Confidence is reported to be growing in the UK’s retail sector, despite insolvencies in the industry hitting a five-year-high over the past year. Optimism that conditions could be set to improve this year, combined with high levels of distress, suggests that there could be a wealth of opportunities for buyers to capitalise on.
According to new figures from Mazars, insolvencies in the UK retail sector rose to 2,195 in the year ending January 31 2024, a 19 per cent increase on 1,843 seen in the previous year. E-commerce insolvencies, meanwhile, have risen 18 per cent, from 521 to 615.
There were a number of high-profile retail insolvencies last year, with the biggest being bargain retailer Wilko. This is a trend that has continued during 2024, with the likes of cosmetics giant The Body Shop, menswear chain Ted Baker and the European arm of Japanese homeware retailer Muji among the most recent collapses.
Retailers have been impacted by numerous challenges, including falling household spending during the ongoing cost-of-living crisis and higher interest rates.
Mazars partner Rebecca Dacre commented: “Retailers are still not out of the woods as many are continuing to face rising staff costs. We are unlikely to see the retail sector trading comfortably until interest rates start to fall.”
“Despite inflationary pressures easing, high interest rates and low consumer spending continue to persist. The rise in the National Living Wage is the largest on record and some face a sharp rise in business rates from April.”
However, there have been a growing number of indications that better times could be ahead for the beleaguered sector. According to the recent British Retail Consortium (BRC)-KPMG Retail Sales Monitor, total UK retail sales were up 3.5 per cent in March compared to the same month a year earlier, while food sales were up 6.8 per cent.
Despite online sales continuing to fall, the figures for March have provided a welcome boost for retailers. The uptick in sales has been attributed to the unusually early Easter bank holiday weekend.
Linda Ellett, at KPMG, said: “An early Easter showed green shoots of spring for retailers in March, with sales growth up 3.5 per cent on last year, and above headline inflation for the first time in more than two years.”
“High street sales growth was driven by food and drink, health and beauty and keen gardeners who headed outside to enjoy the first days of spring. There were also some signs of green shoots with more categories starting to see positive sales growth in March for the first time in months.
Ellett did caution that retailers face cost base increases during April, with the minimum wage rate rising and larger businesses seeing an increase in business rates.
However, there have also been suggestions that the minimum wage increase, the drop in the energy price cap and warmer weather could contribute to a valuable boost in consumer confidence and greater household spending.
Karen Johnson, Barclays head of retail, said: “Retailers were braced for a more subdued start to 2024, and recent figures are in line with expectations. The wet weather has been a key factor in the slowdown in discretionary spending, as it’s meant fewer visits to the high street and to hospitality venues.”
“However, in spite of this initial lull, many retailers are confident that spending will rebound in the coming months, particularly in anticipation of better weather, the energy price cap drop, an uplift in the National Minimum Wage, and the buzz around major events such as Taylor Swift’s Eras Tour and the Paris 2024 Olympics.”
Clearly, the backdrop for the UK retail sector remains fragile and extremely uncertain. But, with high levels of distress continuing and suggestions that improved trading conditions could be imminent, opportunistic buyers have the potential to acquire valuable assets at low prices and reap the rewards should the sector see a turnaround in fortunes.
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