Phil MeekinView Profile
Statistics from the Insolvency Service suggest that now is not a good time to be “a nation of shopkeepers”. This supposedly derogatory remark is usually attributed to Napoleon. But in fact, it was used earlier by the famous economist Adam Smith in The Wealth of Nations. Recently, this quote has seen a resurgence due to a substantial rise in the number of retail insolvencies; administrations and Company Voluntary Arrangements (CVA).
Increase of insolvencies
In Q1 of 2011, corporate insolvencies (including all processes) for companies in the wholesale and retail sectors increased by 55% compared to the same period last year. Traditionally, businesses already struggling in the retail sector see the Christmas and sales season as a last chance of survival. The quiet period which follows is when many businesses fail. But poor weather also hit sales in the run-up to Christmas 2010.
The latest statistics have shown a substantial rise in the number of retail administrations and retail CVAs for the first quarter of 2011, compared with the last quarter of 2010.
Administrations in retail have seen a 55% jump; from 80 in Q4 2010 to 124 in Q1 2011.
CVAs in retail have risen by 30%; from 23 in Q4 2010 to 30 in Q1 2011.
The overall number of administrations was up by nearly a quarter; from 642 in Q4 2010 to 782 in Q1 2011; a rise of 22%.
Lack of confidence
Perhaps the biggest issue is confidence from the public. The combination of high unemployment and concern over job security, January’s VAT increase and anxiety over the impact of government cutbacks have seen the people-in-the-street tighten their belts. Despite the Government’s attempts to convince people to keep spending and support the economy, people are being more careful and considered when choosing how to spend their income. Moreover, people seem to be shunning bricks and mortar retailers in favour of online alternatives.
Retail insolvencies have increased by 55% compared to last year. The use of Company Voluntary Arrangements and administrations have also risen. One of the often-quoted reasons is the quiet period at the start of the year, which, when coupled with disappointing Christmas sales, and a lack of confidence from a public wanting to save money, can push struggling businesses over the edge.
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