A “perfect storm” of high discounting and a lacklustre golden quarter could cause multiple insolvencies in the new year, experts have warned.
Female fashion retailers are a particular risk, according to credit insurance firm Atradius.
Bargain-hungry shoppers means discounting remains high, leaving retailers facing a tough time, Atradius said.
Retail Week reported last week that the disruption of Black Friday, mild weather and the Paris terrorist attacks have combined to create a “slower build” to spending as Christmas approaches.
“Those who went into the fourth quarter needing – rather than wanting – a strong performance could be looking at a troubled future
Owen Bassett, senior risk underwriter at Atradius, said that despite consumer confidence riding high, retail had not performed as strongly as anticipated in the vital golden quarter.
“It seems that the extra pound in people’s pockets has been spent on leisure activities such as holidays, entertainment events and eating out,” he said. “Those who went into the fourth quarter needing – rather than wanting – a strong performance could be looking at a troubled future.
First quarter failures
“Experience tells us that when retailers need an exceptional seasonal sales period and then hit financial difficulty, we often see failures in the first quarter.
“It is not unusual in this sector to be loss-making during quarter one and with the first payment of quarterly rent due in January it can be difficult to survive after a poor fourth quarter.”
Female fashion at risk
He warned that female fashion retailers faced a particularly difficult time.
“The female fashion sector is now saturated with many similar businesses competing for the same pound,” said Bassett. “Those that cannot compete in terms of operational efficiency or that don’t continue to appeal to consumers’ tastes in fashion will find themselves in difficulty.”