Last year, 183 retailers went bankrupt in England and Wales, 11% more than the year before. Especially the last quarter was a reason for genuine concern: its 42 retailer bankruptcies represented a 27% rise compared to the third quarter of last year.
Business advisory firm Deloitte, who released the bankruptcy figures, explained that “one in five households have seen a reduction in income, as a result of unemployment, loss of bonuses, reductions in overtime and increased part-time working. Consumers were found to be cutting back across all discretionary spending categories, in an attempt to reduce costs.”
“2011 was a tough year for retailers and unfortunately this trend is set to continue well into 2012”, stated Deloitte's restructuring services partner, Lee Manning. “Many retailers would have been banking on the busy Christmas period to give them a much needed sales uplift, but retailers were forced into discounting at levels last seen in the aftermath of the collapse of Lehman Brothers, putting severe pressure on margins.”
Bad forecasts for 2012
Deloitte expects bankruptcies to rise in at least the first quarter of 2012, caused by the economic crisis, the growing popularity of online shopping and the fact that the profitable Christmas sales are over. “Spending trends in the retail sector are regarded as key indicators of current market sentiment. Whilst inflation should fall sharply in 2012, bringing some relief to hard pressed consumers, we would expect household spending to increase only modestly in 2012”, as Manning explains.
Deloitte considers the figures to be very disturbing, especially as “the total number of companies falling into administration in 2011 declined by 4% from 2,086 in 2010 to 2,010”. “Unfortunately, we will see a growing number of companies enter administration, as fears around the Euro zone crisis and rising unemployment increase”, is the consultant's fear.