Some 10,250 companies in the retail sector are facing financial distress, according to the latest Red Flag Alert report from business recovery firm Begbies Traynor.
The study, which monitors the early warning signs of company distress, suggests that the industry saw a 17 per cent quarter-on-quarter increase in the number of businesses encountering financial problems in the last three months of 2010.
And although the Centre for Retail Research recently indicated that the number of failed retailers dropped in 2010 compared to the previous year, Begbies said that the number of retailers in financial distress has sped up during the same period.
Ric Traynor, Executive Chairman of Begbies Traynor Group, said: “The retail sector is seeing an increase in distress ahead of greater pressure on consumers’ disposable incomes from higher inflation, tax rises and job cuts.
“With recent evidence of falling house prices, we expect a combination of deteriorating consumer confidence and financial resources to result in an increase in business failures in the sectors most exposed to discretionary spending as we move through 2011.”
The report also noted that almost 148,000 UK companies, across all sectors, are facing significant or critical financial problems, with those in the latter group struggling with nearly £53 billion worth of liabilities.
Begbies suggested that the wholesale sector showed the largest increase in distress compared to the previous quarter, which is another issue that retailers must face up to.
Traynor added: “With higher commodity prices difficult to pass on to consumers, retailers will be under pressure to squeeze the already tight margins of their suppliers, which smaller suppliers will find increasingly difficult to withstand.”
Professor Joshua Bamfield, Director of the Centre for Retail Research, told Retail Gazette today that multiples with around ten to 30 stores, as well as some independent companies, will find 2011 particularly difficult.
He commented: “There will be a real problem at the smaller end of the marketplace.
“There are too many retailers in the UK and we continue to forecast that around ten per cent of them will close down this year.”