Retailers on thin ice as thrifty shoppers slash Christmas spending this year

54% increase in ‘Significant’ financial distress among UK retailers compared to last Christmas

While Black Friday provided a short term boost to retail sales at the end of November, new research released today reveals that UK retailers have failed to convince shoppers to part with their cash this festive season, causing the number of struggling businesses in the sector to increase considerably.

According to research (covering 1 October to 17 December 2014) by Begbies Traynor, which measures corporate distress levels among UK businesses, UK retailers are considerably worse off this Christmas than they were last year, with 24,251 retailers now suffering ‘Significant’ financial distress, compared to 15,792 businesses at the same stage last year; a huge increase in distress of 54%.

Food and clothing retailers were two of the worst hit groups, experiencing increases in ‘Significant’ distress of 70% (Q4 2014: 3,819 vs. Q4 2013: 2,243 businesses) and 123% (Q4 2014: 1,482 vs. Q4 2013: 666 businesses) respectively. Over the same period, levels of more severe ‘Critical’ distress decreased slightly by 10% from 150 retailers in Q4 2013 to 135 businesses this quarter, as the last minute shopping rush before Christmas artificially boosted sales, bringing a small number of the UK’s least stable retailers back from the brink.

Julie Palmer, Partner and retail expert at Begbies Traynor, says:

“Black Friday was lauded as the biggest day of retail sales this year, but it seems the only real winners were the largest online retailers and big brand high street chains with the biggest discounts and best online offerings, such as Amazon and John Lewis.

“In a bid to compete, the rest of the UK retail industry has been forced to slash prices and profit margins, but unfortunately sales volumes have failed to keep pace as Christmas shoppers across the UK have been particularly thrifty this year, taking advantage of the significant discounts on offer.

“With rates of inflation at a 12 year low, recent significant oil price drops, real incomes improving and confidence growing, consumers’ discretionary spending power should be set to rally. However, the extra spending power hasn’t translated into improved conditions in the retail sector, indicating a ‘new normal’ where consumers will only part with their hard earned cash for significant discounts.

“With Christmas just around the corner, no amount of last minute present buying will turn around the fortunes of the general retailers before the sales frenzy starts on Boxing Day. But all is still to play for in the food retailing sector as the supermarkets experience their busiest week of the year, as families pack their trollies full of Christmas treats to get them through until the New Year.