Retail failures doubled last year amid cost crisis

Shop closures have mounted (pic: Terry Murden)

Twice as many retailers went bust last year than in the previous 12 months as they failed to cope with rising costs, supply chain disruptions and falling consumer demand.

New data reveals there were 96% more filings for insolvency (100 appointments) in the retail sector in comparison to 2021, and 67% (70 appointments) more in the leisure & hospitality sector. 

High profile casualties included Joules, AMT Coffee, M&Co and Byron Burger.

Retail growth continued to slow last month with total sales rising 4.2% in January compared to December’s annual growth rate of 6.9%. The British Retail Consortium attributed much of the rise to high inflation pushing up the value of goods being sold, masking weaker sales volumes.

Alistair McAlinden, head of Interpath Advisory in Scotland, commented: “Businesses in the retail and casual dining space continue to face one challenge after another – from rising input costs and interest rate rises, to supply chain disruption and staff shortages, not forgetting falling consumer spend due to the spiralling cost of living.

“Many are also finding that they have surplus stock on their hands, as demand has dampened and inventory levels have continued to rise.”

More encouragingly, the number of companies filing for administration in Scotland fell by a quarter (26%) in 2022 top 32 from 43 in 2021. There were three administrations last month compared to six in December.

This does not reflect the UK picture, however, which saw a total of 1,039 companies fall into administration in 2022 – up from 710 companies in 2021, but nevertheless still well below pre-pandemic levels of 1,422 in 2019 and 1,337 in 2018. 

Looking ahead, he said lenders would seek more covenants, as well as tighter definitions and reduced flexibility on key terms.

“We are also seeing lenders take tougher stances on underperforming assets, having difficult conversations earlier on,” he said. 

“So, as the market starts to tighten, we expect to see more administrations.”

Whilst the lower level of administrations in Scotland is welcome news, concerns remain that Scottish businesses are still battling against a number of external pressures.

Blair Nimmo, chief executive of Interpath Advisory, said: “Last year came as a body blow for many businesses who had been hoping for a year of respite following two years’ of disruption caused by the pandemic.

“Instead, spiralling inflation, rising interest rates, faltering consumer confidence, political turbulence and weaker cross-border trade served to pile on even more pressure.

“And despite figures released by the Office for National Statistics confirming that the UK economy grew by 0.1 % in November, the longer-term outlook remains highly uncertain and rather gloomy.”

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