North East retailers will be wishing for an early start to the Christmas shopping season after new research showed declining levels of business stability in the sector.
According to insolvency and restructuring trade body R3, the proportion of regional retailers with a raised risk of getting into financial difficulty in the next year has risen for the sixth successive month.
It is now three percentage points higher than it was six months ago (27% vs 24%), and with the latest Quarter Day on which commercial rental payments are traditionally due falling later this month, there are concerns that a growing number of North East retailers could feel the pressure on their finances increase as they move into the busiest trading period of the year.
The quarterly rent payments which traditionally fall around the 25th of March, June, September and December can represent a significant outgoing for struggling firms, and numerous well-known High Street names have entered into administration in either the run-up to or days immediately following Quarter Days over the last decade, as the pressure to meet their rental obligations has proved too much for their finances.
Looking more widely, all but two of the 11 regional industry sectors that R3 reviews on a monthly basis for its business stability rankings have seen the proportion of firms therein with a heightened risk of insolvency increase in the last six months by between two and four percentage points.
Only the transport & haulage sector has recorded an improvement in business stability over the last six months, while the restaurant sector has held steady since March.
Regional firms in seven of the 11 key industries that R3 monitors currently have a worse rate of business stability than the national average for their respective sectors.
Overall, 29% of all North East businesses have a heightened risk of entering insolvency in the next year, which is the same as this month’s cross-sector national average, but is four percentage points up on where it stood back in March.
R3’s insolvency risk tracker is compiled using Bureau van Dijk’s ‘Fame’ database and measures companies’ balances sheets, director track records and other information to work out their likelihood of survival over the next 12 months.
Neil Harrold, chair of R3 in the North East and a partner with Hay & Kilner Law Firm, says: “Competition from online retailers, rising rental and staff costs, and the current period of general economic uncertainty are combining to create tough conditions on the High Street, and many regional retailers will be fervently hoping that Christmas shoppers start turning out sooner rather than later.
“The financial outlay associated with Quarter Day can have a big impact on retailers’ operations, and if any owners feel that the cost could be a tipping point for them, they should be speaking to their landlords as soon as they can to see what can be done – after all, the vast majority are likely to want to avoid the worst case scenario of their property becoming avoidably empty.
“As with any business, insolvency isn’t necessarily the end of the road for a retailer – it can be an opportunity to restructure and rethink the business model, and many retailers have come out of administration and subsequently gone from strength to strength.
“With insolvency risk continuing to rise across most sectors, North East management teams need to retain a firm grip on their businesses’ financial situations, so they can move quickly and access the widest possible range of advice and solutions to any problems that could be coming their way.”