Retail administrations decline despite high street turmoil
UK retail administrations have been declining in 2019 despite heavy pressure on high street stores, according to new figures.
The number of retail and consumer firms which fell into administration over the past year to November was 30% lower than in 2018, according to data from KPMG.
The corporate finance firm said that although fewer retailers collapsed outright, the retail landscape was just as perilous as more firms utilised restructuring methods to avoid insolvency.
Company Voluntary Arrangements (CVAs), an agreement which allows renegotiations with landlords, significantly increased in the year as the burden of rents and rates remained high on retailers.
Will Wright, partner at KPMG’s restructuring team, said that large numbers of retailers announced major store closures, but there was a reduction in the number of businesses having to close their entire store portfolio and fold.
He said: “There has been a clear increase in CVAs, and by using that companies then don’t go into administration.
“There is still a debate to be had over their use, but it means they are not taking the retailer out of the market and we’ve therefore seen fewer retailers having to shut all stores.
“But, even in just the past 12 months, I think CVAs have become harder to get through.”
High profile retailers such as Mothercare and Debenhams collapsed into administration during the year contributing to hundreds of store closures and thousands of job losses in the sector.
But some retailers, such as greetings card seller Clinton’s, attempted to push through restructuring proposals to avoid administration but were forced into insolvency after failing to gain backing from creditors.
Meanwhile, a number of other major retailers – such as Sir Philip Green's Topshop to Burton fashion retail empire Arcadia, closed stores through CVA procedures – secured rent reductions and avoided collapse.
Pressure from online retailers and high costs resulted in 81 retail administrations in the 11 months to November, down from 116 a year earlier.
Meanwhile, the fast moving consumer goods (FMCG) sector – which covers food and drink brands – saw 35 administrations in the period to November, which was also a 30% decline, from 50 in 2018.
Wright, who worked on the administrations of Jack Wills and Jamie’s Italian in 2019, added that December is always a key month for retailers and poor trading during the period can often lead to administrations at the end of the month and the following January.
He said: “The landscape still looks pretty busy from our perspective, and there is certainly a feeling that 2020 could be just as busy.”
Richard Fleming, managing director of Alvarez & Marsal’s restructuring team, said that retailers were “on the back foot” from the very start of 2019, after double digit sales declines for many over the 2018 Christmas period.
He added: “Pressure on physical retailers has only increased this year and we have seen some historic high street names with large physical presences collapse.
“It’s unlikely that we’ll see anything on this scale in 2020, but we do expect a steady stream of administrations to continue next year.
“The success of retailers over the next year really depends on their sales over the Christmas period.
“It’s too early to predict which retailers will be the winners and losers for 2020, but we do know that many retailers have found it exceptionally difficult this year to forecast the stock that they need for the critical festive period.”