Retail insolvency rises as industry hit by increased costs

High streets in the UK are plagued, industry experts stated citing the dramatically rising number of retail insolvencies as businesses feel the impact of higher interest rates, increased costs and cautious consumer spending.

According to Mazars, the audit, tax and advisory firm, a total of 2,195 retailers collapsed in the year to the end of January, an increase of 19 per cent compared with the year before.

Mazars said the industry had been hit by a “combination of increased costs and cautious household spending among consumers,” while higher interest rates were “also causing significant problems for any retailer that has a significant level of debt”.

Latest big names in retail insolvencies include The Body Shop in February, as well as the fashion brand Ted Baker. Wilko, the DIY and homeware chain, collapsed into administration in August resulting in the closure of 400 shops.

Retail sales dropped again in March, the longest streak outside of the pandemic, highlighting the impact of low consumer spending on retailers. Total in-store and online sales fell by 2.2 per cent last month, the sixth month in a row that retail sales had fallen, a survey by BDO, a consultancy, showed.

Although inflation has started to moderate, Rebecca Dacre, a partner at Mazars, warned that retailers were “not yet out of the woods” as businesses continued to face high interest rates and rising staff costs.

“Despite inflationary pressures easing, high interest rates and low consumer spending continue to persist,” The Times quoted Dacre as saying. “The rise in the national living wage is the largest on record and some face a sharp rise in business rates from April.”

Tom Ironside, director of business and regulation at the British Retail Consortium (BRC), said business rates “remain the biggest threat to the vitality of our high streets”.

The industry is concerned about the negative impact that further insolvencies could have on the high street. Three thousand more retail shops closed in 2023 than in 2022, according to recent figures released by the Local Data Company. There were 14,081 shop closures across all retail sectors, a significant increase on 2022’s figure of 11,530.

Jo Windsor, a restructuring and insolvency partner at Linklaters, the law firm, said retail administrations and insolvencies had “plagued” the high street this year, with retailers “dependent on discretionary spending, who are vulnerable to lower-cost competitors or who have insufficient working capital” mostly affected.