Energy cost cited as biggest concern as one in five retailers fear insolvency

Over one in five (22 per cent) retail businesses in the UK are not confident of trading through to the end of 2023, states a new research.

According to new research published by FRP, three in five (60 per cent) retailers citing increased energy costs as the biggest pressure on their profit margins, the research found that 22 per cent of respondents fear insolvency this year if the government continues with its plan to reduce relief on energy bills from April onwards.

A third (33 per cent) want the government to increase energy support into the new tax year. 

The research is based on a poll of 250 large and mid-sized retailers across the UK – with the findings presenting significant concerns for the sector.

Two-thirds (66 per cent) of retailers state that they have seen an increase in operating costs in 2022 – by 21 per cent on average.

Energy will continue to be retailers’ most significant concern over the next 12 months though, with more than half (52 per cent) citing it as the biggest anticipated pressure on their margins.

FRP found that more than a third (36 per cent) of retail businesses have passed on general cost increases to their customers in the last year, with similar numbers (32 per cent) expecting to do so this year. Just over a  fifth (21 per cent) took on new debt in 2022, with a significant majority (68 per cent) of all respondents expecting to seek an increase in debt facilities from lenders this year.

Commenting on the poll’s findings, Phil Reynolds, restructuring advisory partner and retail specialist at FRP, said that these are incredibly turbulent times for retailers.

“Inflation is pushing up operating costs and dampening consumer confidence, with the looming recession likely to ensure that conditions remain challenging for some time to come.

“However, against such a dynamic backdrop and strong headwinds, the sector is working hard to adapt – with the majority expecting margins to hold up through the next six months and beyond. For the still worryingly high number of businesses concerned about their future, keeping a close eye on the fundamentals – ensuring cash flow forecasts are up-to-date, and tightly managing working capital – will be critical.

“Management teams will need to ensure that they have multi-level contingency plans in place for every possible scenario as, ultimately, those that thrive will be those who can be flexible and respond positively to change.”