Retail insolvencies increase 19% as businesses feel squeeze

Retail insolvencies have risen sharply as businesses are feeling the effects of rising interest rates, higher costs and cautious spending by consumers.

According to Mazars the audit, tax, and advisory firm, 2,195 retail outlets collapsed during the past year, a 19% increase compared to the previous year.

The Body Shop, in February; fashion brand Ted Baker; and luxury online fashion retailers Matchesfashion & Farfetch are all examples of high-profile retail failures. Wilko, a DIY and homewares chain, went into administration in August, resulting in 400 shop closures.

Mazars stated that the retail industry was being affected by “a combination of increased costs and cautious spending by consumers”, while “higher interest rates are also causing significant issues for any retailer who has a high level of debt”.

The retail sales fell again in March. This is longest run outside of pandemic. It highlights the impact on retailers of low consumer spending.

A survey by BDO showed that total in-store and internet sales dropped by 2.2% last month. This is the sixth consecutive month of falling retail sales.

Wiggle, an online bike retailer that collapsed in October of last year

Insolvencies have impacted brick-and-mortar stores more than e-commerce in recent years. However, rising costs have also put a strain on e-commerce.

Insolvencies in e-commerce rose to 615 last year. This is the highest number in five years. Wiggle, an online bike retailer , collapsed into bankruptcy last October.

Rebecca Dacre of Mazars warned that although inflation had started to moderate, retailers were still “not out of the woods”, as they continued to be faced with high interest rates and increasing staff costs. The national living wages for 23-year olds increased this month by 9.8% to £11.44 an hour.

Dacre stated that despite the easing of inflationary pressures, high interest rates continue to prevail and low consumer expenditures. The rise in the living wage in the UK is the biggest ever recorded and many businesses will face a steep rise in rates in April.

Retail bosses like Alex Baldock of Currys have warned that an increase in minimum wage to a record level at the same as commercial property tax is set to rise £1.6 billion would lead “to more sustained inflation”, and “hinder a lot investment, growth, and jobs in one the most important sectors of the country.” It’s going to be counterproductive.”

Tom Ironside, director for business and regulations at the British Retail Consortium lobby group, stated that business rates “remains the greatest threat to the vitality our high streets”.

The industry is worried about the impact of further insolvencies on the high street. According to the Local Data Company, three thousand retail shops more closed in 2023 compared to 2022. The Local Data Company released figures showing that 14,081 retail shops closed in 2023, an increase of 3000 over the previous year.

Jo Windsor, a restructuring partner and insolvency specialist at Linklaters law firm, says retail insolvencies and administrations have “plagued the high street” this year. Retailers “dependent on discretionary expenditure, vulnerable to competitors with lower costs, or having insufficient working capital,” are the most affected.