Retail and consumer goods remains Europe’s ‘most distressed sector’, with pressure reaching its highest level since the Global Financial Crisis.

The latest Weil European Distress Index found distress across the retail and consumer goods sector rose to +8.1 in August, up from +6.0 a year earlier and increasing on the previous quarter.

Profitability, investment, liquidity and valuation all came under pressure, with higher energy, transport and financing costs continuing to squeeze margins and cash flow.

Weil said fragile consumer confidence and pressure on household finances were also weighing on discretionary spending across the sector.

The deterioration in retail happened despite an improvement in overall European corporate distress, with the index easing to +2.7 in August from +2.8 in May.

The data suggests businesses have so far absorbed the initial shock from the conflict in the Middle East better than expected, helped by stronger economic activity and relatively supportive financial markets.

However, Weil warned the improvement remains fragile, with distress still above its long-run average and profitability, investment and liquidity continuing to weigh on businesses.

Weil London restructuring partner Jenny Davidson said: “The sector picture shows retail distress at its highest level since the Global Financial Crisis, but the nature of that distress is very different.

“Profitability and liquidity now play a much greater role as retailers contend with higher costs, rising interest rates and uneven consumer demand.”

She warned the upcoming debt maturity wall could further widen the gap between businesses with enough balance-sheet flexibility to absorb the pressure and those with less room for manoeuvre.

France overtook Germany to become the most distressed market covered by the index, with its score holding at +4.8, compared with +4.4 for Germany and +4.0 for the UK.

UK corporate distress eased from +4.4 in the previous quarter, although it remained above the +3.6 recorded a year earlier.

The report said the UK economy had proved more resilient than expected, with GDP rising 0.4 per cent in the second quarter and business investment up 1.7 per cent.

However, financing costs remain a major pressure point, particularly for smaller businesses.

Weil London restructuring head Andrew Wilkinson said: “The latest data suggests businesses have absorbed the first wave of geopolitical and economic disruption better than many expected.

“But resilience should not be mistaken for recovery. Distress remains above normal levels, and financing conditions are still challenging.”

He added that if borrowing costs remain elevated while demand and margins stay under pressure, current distress levels could begin to translate into higher default rates across Europe.

Click here to sign up to Retail Gazette‘s free daily email newsletter