Retailers across the UK are bracing themselves for quarter rent day tomorrow as payments due to landlords could create “a perfect storm” of events, it has been claimed.
According to recovery advisors Begbies Traynor, a total of 15,312 retail companies are currently under considerable financial distress and Saturday’s payment could lead to further administrations.
Julie Palmer, Partner at Begbies Traynor, explained the significance of the deadline.
She commented: “Dark clouds are brewing again in the retail sector ahead of September’s quarter rent day on Saturday.
“The sector has been effected by what could be perceived as a ‘perfect storm’ of events: the Olympic factor has had a detrimental effect on retail across the country as more shoppers have stayed at home during the key summer trading season; rising fuel prices mean shoppers focus on essential journeys only, reducing footfall on the high street.
“Business rates and energy costs have become an increased burden and minimal wage increases or pay freezes are encouraging consumers to cut costs and pay down debt instead of spending in stores.”
Earlier this month, the Local Data Company revealed that, for the first six months of the year, UK shop vacancy rates stood at 14.6 per cent, with vacancy levels remaining unchanged since March which saw the highest rates since June 2008.
At the start of this week, sports retailer JJB Sports announced that it is to call in administrators as the offer period for the company had ended, adding that it hopes to be in a position to announce a sale of the trade, assets and brands of the business in the coming days, though rumours of rival Sports Direct purchasing stores have so far not been confirmed.
Jonathan De Mello, Head of Retail Consultancy CBRE, warned that the retailer and others that are struggling must re-examine payment schedules in order to relieve the pressure.
De Mello said: “With JJB Sports recently putting itself up for sale - and either requiring a large cash injection or operational revamp if it is to avoid administration - the sportswear retailer is increasingly looking like it could become the 42nd retailer to fail this year.
“It is clear that the challenging economic climate is not getting any easier for struggling retailers and the ‘Quarterly rent’ payment - due this Saturday - has clearly come at a bad time.
“Around 4,000 jobs are potentially affected at JJB Sports, while nearly 40,000 retail jobs have already been lost due to administrations in the first half of 2012, already more than any other year since 2008.
“Despite these job losses and the general challenges faced by the sector, most retailers still pay rents quarterly rather than monthly – this tradition is not ideal from a cash flow perspective, especially given that many retailers did not experience the much-anticipated Olympic boost and performed poorly this summer.
“That said, struggling retailers such as JJB Sports need more than a switch to monthly rental payments to help them survive. JJB was in terminal decline due to the polarisation of the sports retail market, with Sports Direct (value) and JD Sports (sports/fashion) seizing market share.
“The supermarkets also took a big chunk of the market leaving JJB well and truly ‘stuck in the middle’ - without a clear consumer or business strategy, or distinct market positioning.
“Monthly rents are not the Holy Grail for retailers and can only stay - not prevent - retail execution. Much more needs to be done to help the retail industry at both a local and national level.”
Quarterly rent day also falls ahead of the busy Christmas period which retailers are hoping will buoy sales following a disappointing Olympic and Paralympic period and so the sector will be poised for possible additional collapses.
Palmer concluded: “The important last quarter of the year is increasingly looking like a “Russian roulette” trading season for retailers.
“A combination of stores needing to be fully stocked for the key Xmas trading season, suppliers asking for ever shorter payment terms and shoppers playing a waiting game for price reductions and sales will put considerable cash flow pressure on those retailers already experiencing financial distress.”