Retail “therapy” needed…

Despite the Chancellor’s claims of a recovering economy, retailers may find themselves requiring a different kind of therapy after data compiled by the Local Data Company, shows that within 500 UK town centres 3,366 stores closed in a six a month period compared to 3,157 stores opening. The research found 31% of retailers currently have a “higher than normal” risk of entering an insolvency procedure within one year compared to other types of businesses.

This is particularly relevant considering the rent quarter date (where retailers pay three months of rent in advance), was due at the end of September. We have already seen the problems this causes for retailers as following July’s rent quarter date, retail giants such as Modelzone, Nicole Farhi, and Dwell all entered into Administration.

Whilst unpaid rent was certainly not the only financial pressure experienced by these companies, you can imagine the strain on cash flow having to find three months rent in advance given the number of stores occupied by these businesses.

With the media’s attention firmly focused on the threat of “zombie businesses” to the improving economy, I wonder whether with the combination of the rent quarter date, reduced margins to remain competitive and consumers choosing to spend their money online rather than venturing out to the high street, we will start to see more and more retailers give up the ghost.

However insolvency does not necessarily have to represent the demise of the business for a retailer. It can be an opportunity to review and restructure the business model where perhaps before the focus would mainly have been on survival.

With the festive season fast approaching, considered by most retailers to be their busiest time of year, swiftly followed by another rent quarter date, will we see the anticipated spike in retail insolvency? Will the new year mean cheer or oh dear for retailers? Watch this space.