THE number of retail companies falling into administration in the first quarter of this year increased by 30% to 60 compared with 46 in the same period last year, according to new figures.
This is the highest number of retailers to enter administration in a quarter in two years, according to research by business advisory firm Deloitte.
Dan Butters, partner in the reorganisation services practice in the Leeds office, said: “It comes as no surprise that the retail sector has been worst affected. The sector is heavily reliant on buoyant consumer spending and the increase in VAT and the government’s austerity measures are undoubtedly hitting the sector hard.
“In particular, smaller retailers are likely to be feeling the pinch more so than ever, as they often have little grounds to negotiate flexible credit terms with suppliers and may find it difficult to raise funding.”
“During the economic downturn, companies experiencing financial difficulty were able to rely on low interest rates and HMRC’s favourable Time to Pay scheme in order to make ends meet. However, as HMRC attempts to recoup lost revenue, we are likely to see a more hardened approach being taken. We have already seen a decline in the acceptance of CVAs, often used as a last resort by companies attempting to avoid administration.”
He added: “Whilst the retail sector has fared the worst this quarter, this trend is very much in line with the overall direction of the market. Overall, the first quarter of 2011 saw an increase of 21% on the previous quarter, with a total of 557 companies falling into administration compared with 438 in Q4 of 2010. These figures indicate that we are not out of the woods yet.”