“Rising risk of major retail bankruptcies”

Despite higher sales, many retailers are financially struggling as they face rising costs and heavy debts. Credit insurer Allianz Trade is warning for a wave of bankruptcies.

“Very difficult period”

Things are going from bad to worse for many retailers, even if they see their turnover increase: many see huge overstocks that may have to be sold at dumping prices. Allianz Trade’s Johan Geeroms has a rather bleak view of the future for many retailers: the increases in turnover are often purely owed to price increases as volumes are falling. Moreover, costs are rising while profits are falling. Many retailers are already heavily in debt and find it harder to meet their obligations due to rising interest rates.

Allianz Trade paints a paradoxical picture of household spending: while consumers are cutting back on everyday needs (such as food, electricity and petrol), they are spending more money on cars, appliances, furniture, clothes and toys. This growth in spending cannot ease concerns in the retail sector: “On the contrary. We foresee a very difficult period. Retail has plenty of other concerns: staff shortages, rising wages, higher energy costs. For many products, those higher costs cannot simply be passed on to higher prices.”

Fashion and e-commerce

Retailers find themselves between a rock and a hard place, Geeroms points out. “They do not have the money for necessary investments, such as digitisation – which is vital.” He points to major retailers that recently ran into trouble: Scotch & Soda, the Score Group, bicycle manufacturer VanMoof, and early this year the bankruptcy of Makro in Belgium.

“According to our research department, the probability of large bankruptcies (companies with an annual turnover of 50 million euros or more) has risen sharply. Last year, there were sixteen such bankruptcies causing companies with a total turnover of more than five billion euros to cease trading. This year, we see it accelerating. In the first quarter of this year alone, eleven cases involving 2.4 billion euros were lost. These large chains and brands in particular need to invest a lot. Often, they already have a lot of debt. Rising interest rates, on top of all the other rising costs, make it increasingly difficult to meet obligations.” According to Allianz Trade, fashion chains, department stores and e-commerce retailers are most at risk.