The number of UK retailers was on the brink of collapse in the final quarter of the year, driven by business activity rising costs and weak consumer confidence, according to a report.
The proportion of retail businesses in “critical” financial distress jumped 25% to 2,124 in the fourth quarter compared with the third, insolvency specialist Begbies Traynor said.
The general retail sector is under the most pressure, with a 29% quarterly increase in financial transactions in critical constraints, rising to 1,457 from 1,127 in the third quarter.
In the feed and drugs sector there was a 17.2% quarterly increase, while the number of businesses facing the fall rose from 569 in the third quarter to 667 by the end of the 11th week of the final quarter of this year.
Overall, a total of 28,747 retailers in the UK are facing “significant” financial distress, up from 34,494 in the same quarter last year, the report found.
“This year has highlighted the resilience and adaptability of some UK retailers, but the sector remains under significant competition,” said Julie Palmer, partner at Begbies Traynor. “Of course, some retailers have found ways to effectively manage financial constraints, but others, especially general retailers, are struggling under the weight of rising operating costs and consumer spending.”
Fewer consumers ventured to high streets and shopping centers take advantage of this year’s Boxing Day Sales.
Footfall across UK retailers was down 4.9% year-on-year on Thursday, according to MRI Software data.
High street destinations had the biggest falls in shoppers, down 6.2% year on year. Footfall to shopping centers decreased 4.2% compared to Boxing Day last year, while retail parks fared slightly better, up 2.9% year-on-year.
Many shoppers are focused on pre-Christmas shopping, with foot steps up to 18% on Christmas Eve compared to last year.
A number of UK general retailers fell on Friday, with traders seeing a drop in the Boxing Day footy.
Shares in NextClothing and home retailers fell 1.7% on Friday, making it the biggest fall in the FTSE 100.
Meanwhile, electric retailer AO World was one of the biggest fallers in the FTSE 250, down more than 3%.
Last year, Boxing Day footfall grew 4% to 2022, fueling high street shopping up 8.6% year on year.
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Many retailers kicked back their under-pressure sales on Boxing Day earlier this year, giving shoppers the opportunity to grab deals online without making a trip to stores.
MRI Pulse Consumer Software’s report found that 53% of shoppers planned to complete at least half of their Christmas shopping online.
“After a slow start in December, retailers have since been chasing the critical Christmas market,” said Andy Sumpter, retail consultant at Sensormatic Solutions. “And this tailgate has prompted many to launch their Boxing Day sales much earlier than usual to drive pre-Christmas sales, with some retailers or discount offers being delivered for Boxing Day held in early to mid-December.”
MRI Software expects an increase in retail sales from Friday as many large retailers close, including John Lewis, Markus & Spencer, Next and Aldi.
Despite a quarter-on-quarter increase in retailers in the wake of the bank crash, the number of UK retailers in critical financial distress fell slightly on the year, from 2,142 last year.
Palmer said he expected an “elevation” in insolvency levels next year as measured by the thesis autumn budget – additional purpose increases to employers’ national insurance contributions, increase in minimum wages and adjustments to capital gains tax – affects businesses.
“Even for businesses, the pressures remain brutal and many will likely face financial challenges next year as they navigate these compounding difficulties,” said Palmer. “With these challenges on the horizon, weaker businesses can find little joy as we enter the new year.”