Retailers lacking “a relevant proposition” are driving the increase in retail insolvencies, a new survey released today warns.
According to restructuring specialists Ernst & Young’s latest retail survey, the main drivers that could lead to an increase in insolvencies this year are failing to modernise the overall proposition, onerous store portfolios and “a prolonged period of distress on the high street” following high-profile administrations on the high street.
Collating the views of 50 retail executives, the survey found that nearly 60 per cent believe that retailers with a proposition that lacked relevance would be the primary cause of additional insolvencies while a quarter pointed to strained bricks & mortar portfolios and other operational problems.
Mounting cost pressure is also a factor in the distress of the high street, which the survey found to be the “new normal”, with 60 per cent of executives warning of rising rent and property rates while 25 per cent said that the highest pressure on costs came from input prices including raw materials.
Julie Carlyle, Partner and Head of UK Retail at Ernst & Young, explained: “Many retailers have large property portfolios with significant rental and rate obligations to meet and these are eating into margins.
“With online sales rising year on year and footfall declining for certain stores the need for expansive portfolios has declined.
“However, slimming down store portfolios takes time and retailers will also have to contend with a further pressure on property costs with April’s planned increase in business rates.”
Recovery on the high street, which has taken bitter blows since the start of the year with the administrations of HMV, Blockbuster, Jessops and Gio-Goi, seems a long way off as 53 per cent said they expect no improvement until next year while 38 per cent anticipate waiting until at least 2015 for things to improve.
Carlyle noted that the gap between winners and losers in the sector is stark as the high street becomes increasingly polarised.
She added: “To compete in these difficult markets, retailers will need absolute focus on operational and financial efficiency, while also having the flexibility to adapt to changing and patterns in consumer behaviour.
“Some businesses will need radical restructuring of debts and store portfolios to remain viable, which is likely to generate further interest from distressed funds.
“Many of the retailers that have gone into administration still have a future in a slimmed down form – either online or with fewer stores and manageable levels of debt.
“The UK high street isn’t dying; it’s just being reshaped to meet the needs of a new generation of consumers – and for the foreseeable future distress will be the new normal.”