The latest report by insolvency specialist Begbies Traynor has shed light on the financial distress facing a significant number of UK businesses in the fourth quarter of the year. The report reveals that a staggering 481,000 businesses were grappling with financial challenges, largely attributed to the winter freeze. Interestingly, the distressed list featured fewer retailers, but experts are predicting a tougher road ahead for the retail sector in the coming year.
Although there was only a marginal uptick in struggling retailers in Q4, the forecast for Q1 includes more retail closures. Real estate and property firms bore the brunt of the financial distress, possibly due to the ripple effects of the retail downturn and the surge in retail administration filings and CVAs. This has created immense pressure on landlords. Overall, the number of struggling businesses saw a nearly 15,000 increase in Q4, with a 7% rise in real estate property firms facing distress. Moreover, the count of businesses in ‘critical’ financial distress surged by 25% year-on-year, hitting 2,183.
While the retail sector did not feature prominently among the worst-hit industries, it did witness a 2% rise in companies grappling with significant financial difficulties quarter-on-quarter. This uptick could signal that the sector is beginning to feel the repercussions of financial troubles. Despite Q4 traditionally being a robust cash trading period for retailers, any underlying issues in this sector are projected to surface in Q1, according to the report.
Julie Palmer, a Partner at Begbies Traynor, voiced apprehensions about the hurdles confronting UK businesses. She pointed out that brick-and-mortar retailers are losing ground to online shopping, and the Brexit uncertainty is compounding the industry’s challenges. The dip in foot traffic and consumer spending, coupled with major retailers like HMV, M&S, and Debenhams recording lackluster Christmas trading figures, have contributed to the slump in the retail sector. Despite a gradual rise in struggling retailers from Q4 2017, Palmer cautioned that heavy discounting could be lulling retailers into a false sense of security, postponing the inevitable plunge into financial jeopardy. She advised the sector to brace for a tough start to 2019.
For more information on the financial distress facing UK businesses and the retail sector, check out these useful links:
Begbies Traynor
BBC Business News
