Whilst headlines and concerns are currently centred on the Carillion insolvency and the likely knock-on impact to businesses in its supply chain, we cannot ignore the problems being faced by the retail and leisure sector both nationally and locally in East Anglia.
Christmas has long been the saviour of the high street, with many retailers relying on the so-called “Golden Quarter”, traditionally the sector’s strongest three month period to boost their annual results.
However, there have been signs of concern amongst some of the biggest names on the high street. Debenhams and Mothercare are amongst those who have issued post-Christmas profit warnings, House of Fraser’s attempts to negotiate rent reductions recently hit the headlines and Byron Burger proposed a Company Voluntary Arrangement earlier this month.
So what are the challenges facing retailers as we enter a new year?
Whilst outstanding unsecured debt is at a record high of £205.8bn, there are signs that consumers are starting to reign in their spending amongst fears of further interest rate increases. The Bank of England have revealed that household borrowing is at its slowest pace for two years and consumer spending during 2017 saw its first consistent 12 month decline since 2012.
This has particularly affected non-food retailers, who saw a decrease in sales of 1.9% during December, compared to the previous year.
With a squeeze on disposable income, consumers have become more careful about spending money, delaying non-essential purchases and cutting down on treats, such as eating out and leisure activities.
Food retailers however have experienced the benefits of this trend as consumers favour eating at home. December saw an increase in sales of 2.6% compared to the previous year. Discount supermarkets, which have become increasingly popular, have fared particularly well – Lidl announcing record sales in December (an increase in turnover of 16%).
Shoppers have also physically avoided the high street, a reduction of 3.5% in December, compared to the previous year, the biggest fall since 2013. This trend was proven in Bury St Edmunds, which has been a strong performing retail centre in the region for a number of years. Whilst the number of shoppers throughout 2017 fell by 0.3% compared to 2016, December saw a drop of 6% – the first Christmas decrease for four years.
Traditional retailers are continuing to battle against the lure of the internet with online sales accounting for a quarter of all UK spending during December. Discount sales are also having less of an impact on footfall, as they become more commonplace amongst desperate retailers. Shoppers know that one sale is likely to be followed by another, and can readily search online for the best discounts.
Pubs and restaurants are already experiencing a slow start to the year with an estimated 3.1 million people in the UK giving up alcohol during ‘Dry January’. This will be compounded by a continued lack of disposable income, whilst consumer confidence has been hit further by the Carillion collapse.
Recent research by restructuring and Insolvency trade body, R3, has shown that 34.6% of businesses in the East of England (around 117,700 companies) are at a greater-than-normal risk of insolvency. 2018 will prove to be a particularly challenging year for those in the retail and leisure sector.
As always, if you or any of your clients have any issues or concerns, we will be pleased to offer an initial consultation free of charge to discuss the position and establish the available options. Please contact me in the first instance.