5,000 retailers ‘could go bust next year’

More than 5,000 retailers and wholesalers could go bust next year, according to research from an accountancy firm.

The report from BDO Stoy Hayward says lower wage growth, declining customer credit and higher unemployment could push 4,630 companies in the sector out of business in 2009, rising to 5,070 next year.

This would be double the number that failed in 2007, but less than BDO Stoy Hayward forecast in March, with unemployment having risen more slowly than economists had predicted.

“A flexible labour market has allowed employers to reduce hours and wages rather than make redundancies,” said Tony Nygate, retail business restructuring partner at BDO Stoy Hayward.

The forecasts from the study have been accurate to within an average of 4.5 per cent over the past five years.

Jorg Radeke, an economist at the Centre for Business and Economic Research, which co-produced the report, warned: “Retailers are going to recover more slowly than other parts of the economy, and the sector may never reach the size it was before this recession, with unemployment expected to peak around 11 per cent and savings rates on the rise.”

The report, which analyses economic data from the Department of Business, Enterprise and Regulatory Reform, suggests the sector will remain distressed for many years to come, with failures only dropping below 2008 levels in 2012.

Neil Saunders, consulting director at Verdict, the retail research group, said: “We have no conclusive evidence that retail is emerging from the recession – it is in a precarious state.”

Woolworths was one of the recession’s highest-profile casualties when it collapsed last year, and many analysts hoped that would prove the sector’s nadir. But Mr Saunders warned another company of that size and prominence could go under.

He added: “It is no longer the sharpness but the duration of the recession that is the biggest problem for retailers.”

Analysts said retailers most exposed to the housing market are the most vulnerable, with furniture and DIY chains particularly at risk. Mr Saunders said clothing retailers also remained precarious, with many companies competing for a diminishing amount of disposable income.

Tom Ironside, business environment director at the British Retail Consortium, said: “Certain areas will have to look at the balance between retailers and other forms of business.”

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