Retailers operating in the homewares sector represent over a third of the total administrations during the last quarter, new analysis reveals.
The Business, Innovation and Skills government department published insolvency statistics this morning for the second quarter of 2011, which showed a 2.7 per cent increase from Q1 and a 4.4 per cent rise year-on-year.
High profile administrations over the last few months include TJ Hughes and Oddbins, whilst the homewares sector has been over represented in this depressing trend with the fall of Focus DIY, Habitat and Homeform.
Accounting and business services firm Baker Tilly has argued that retailers in this area of the industry have been hardest hit due to falling consumer spending, and estimate that 37 per cent of companies to fall into administration over the last quarter were home products specialists, up from 24 per cent last year.
Rupert Eastell, Head of Baker Tilly, commented: “Consumers are having to make increasingly tough choices about how and where to spend their money. The harsh reality is that most spending on homewares can be delayed or put off altogether.
“The only real success stories are where the retailer does a brilliant job with its customer service and product offer. Nothing less than the best will do in a competitive climate for a smaller pool of cash.”
Baker Tilly also estimates that the north-west is the worst affected area for insolvencies whilst over 65 per cent of retail business failures during the period occurred outside London and the south-east.
Fears of insolvency are not restricted to one sector of retail however and research from business advisors Grant Thornton UK found companies across the industry are worrying about their financial position and the banks willingness to help them.
According to its data almost a quarter of retailers believe that the financing environment will deteriorate over the coming year while a further 30 per cent see no likely improvement.
In total 60 per cent of retail respondents believe banks are being more conservative than 12 to 18 months ago, with a full 90 per cent saying their cash flow was being scrutinised by banks during negotiations compared to 66 per cent across other industries.
Tim Hansell, Corporate Finance Director at Grant Thornton, added: “The fact that retail groups are finding the lending environment difficult is not a new phenomenon – the banks have treated the retail sector with considerable caution for some time now.
“However, despite the current weakness in consumer confidence, investor appetite still remains high to provide equity funding to support growth in certain niche fast-growing segments of the UK retail sector, such as online retail.
“Lenders are however still cautious about providing leverage to ‘new to bank’ retail customers, and leverage multiples in retail/online transactions continue to be conservative, particularly where the off balance sheet rent roll is significant.”