Insolvency rise shows high street’s woes

The high street continued to be one of the areas of the economy most affected by the slowdown in growth in the UK, as data showed that the number of retail insolvencies rose 10.3 per cent last quarter even as the overall number of companies failing dropped.

There were 426 retail insolvencies recorded for the three months to June 30, according to research by PwC, compared with 386 in the same period in 2011.

Retail insolvencies accounted for over a tenth of the overall number of corporate insolvencies in England and Wales recorded in the period. However, the total number of corporate insolvencies across all sectors fell 3 per cent compared with last year to 3,927.

“Retail is the sector that keeps bucking this trend,” said Mike Jervis, partner in PwC’s business recovery services practice and a retail specialist. “In fact, quarter-on-quarter retail insolvencies have increased for every one of the last four quarters.”

Retailers are under pressure as softer consumer demand and competition from online rivals, particularly in the fashion and homeware subsectors, hits profits.

The expense of maintaining a large number of stores has proved to be an intractable problem for some retail chains. Clinton Cards and Game Group, both of which expanded heavily during the economic boom, went into administration this year.

Game, Europe’s largest dedicated video games retailer by sales, had 610 UK stores when it entered administration, while Clintons operated from more than 750 outlets.

The number of retail insolvencies traditionally peaks in the early months of the year, when those that have endured poor Christmas trading come under pressure. There had been 549 retail insolvencies in the preceding quarter.

The research also showed that the highest number of insolvencies occurred in London, although the figure still fell 9 per cent to 887 compared with the same period last year. Insolvencies increased 70 per cent to 277 in the north-east and Cumbria, but it was the only region to see a rise compared with the previous quarter.

“It is pleasantly surprising and remarkable we are seeing a fewer number of insolvencies,” said Mr Jervis. However, he warned against interpreting an dip as evidence that the economy was improving.

“Managements of distressed companies are more proactive at dealing with them and they receive more support from the banks,” he said, adding that landlords have also played a role by becoming more open to moving from quarterly to monthly rent due dates or agreeing rent reductions.

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