South East: Retail picture improves slightly, says R3

The proportion of South East retail businesses facing a raised risk of insolvency in the next year fell between June and September of this year – but more than two in five of them are still facing potential problems, according to new research by insolvency and restructuring trade body R3.

R3’s research found 44.8% of the active retail businesses across the South East with a bricks-and-mortar presence have an elevated insolvency risk, a slight reduction on June’s figure of 45.9%.

Online retailers in the region are faring slightly better overall, with 41.9% currently having a raised insolvency risk, compared with 43.2% in June, although this figure is still above September’s UK average of 34.9%.

Of the particular retail sectors monitored by R3, South East retailers in the home furnishings sector saw the biggest quarterly improvement, with the level of elevated insolvency risk falling from 48.1% in June to 46.2% in September. Market stalls and sectors including motor retail, home furnishings and footwear have also registered small improvements.

Compared with last year, there has been a small rise of half a percentage point in the proportion of bricks-and-mortar stores, market stalls, and online retailers in the South East at elevated risk of insolvency, from 43.2% in September 2018 to 43.7% in September 2019.

Mike Pavitt, Southern chair of R3, said: “Although the improvements in the last quarter are minimal, any improvement is good news given the long-term difficulties the sector faces. With Christmas fast approaching we’re hopeful this will continue to improve.

“Any retail business owner who feels that the finance of the business may be reaching a critical point is well advised to be proactive and engage with their creditors - including landlords and suppliers - as soon as it is practical for them to do so. They do not have to do this alone, however.

“Sitting down with a licensed insolvency practitioner (IP) – even if a formal insolvency procedure is the last thing on your mind – at an early stage can help you to identify potential solutions (including funding options) you might not have been aware of. Licensed IPs are uniquely qualified to give you an honest and objective assessment and if they advise that the business can’t go on in its current form, the essentially profitable elements of it may still be able to survive and thrive. If the worst does happen, taking and following advice from an IP before things get too bad and so minimising any losses to creditors remains the best way of minimising your exposure to personal liabilities. From that point of view, it’s a win-win.

“Consulting with an IP is as far from an admission of defeat as you can get: they will likely advise you behind the scenes to begin with and if they do have to go in to bat for you, this typically signals to your stakeholders and the wider world that you take your duties seriously and are acting in their best interests.

“In an uncertain economic climate, owners and managers of all businesses need to maintain a firm grip on their financial figures – particularly their projected cash flow – so they can take swift action if they see any potential problems emerging. Even assuming they have yet to exhaust all avenues of potential funding, they shouldn’t be shy of seeking outside advice from someone qualified to assist; the sooner they ask for help, the broader range of options to turn things around.

“My cabinets are full of claims files where owners either took no advice at all, the wrong advice when it mattered, or the right advice but much too late in the day.”

The figures are from R3’s latest retail insolvency risk tracker. The tracker is compiled using Bureau van Dijk’s Fame database of UK companies and measures companies’ balances sheets, director track records and other information to work out their likelihood of survival over the next 12 months.