Credit squeeze hitting retailers
8 Apr 08
Two separate reports show how challenging the business environment has become since the clampdown on consumer lending started to bite
Grant Thornton’s Quoted Retail Companies Index for the first quarter of 2008 found that the number of negative trading statements issued by retailers on the London Stock Exchange continues to increase and is at its highest level in two years.
The index found that 23 per cent of retailers posted negative trading updates, up from 10 per cent in Q1 2007. That’s the highest figure since Q1 2006, when 24 per cent of retailers posted negative trading updates. In addition, the number of positive trading statements dropped to 37 per cent (down from 41 per cent in Q4 2007). The remaining 40 per cent of statements were neutral in tone.
David Bush, Head of Grant Thornton's Retail Services Team, says: "The restriction in unsecured bank lending to consumers and the slowing of house prices has had a greater impact on retail spending than the cut in interest rates since Christmas."
The number of retailers who issued profit warnings in the first quarter increased to eight. All eight warnings were issued from retailers involved in high ticket range goods with representation from the fashion, electricals and furniture sectors (including DSG International, Land of Leather and Moss Bros Group) – these being the sectors most hard hit as the downturn in consumer spending starts to hurt UK retailers.
"We have observed that in the last three months retailers linked to the housing market have also been generally impacted by the current economic downturn," says Bush.
A report by the financial data firm Experian, meanwhile, finds that the number of UK firms closing for business has risen by 8.5% in the first three months of 2008.
It says 4,798 businesses closed their doors between January and March, up from 4,424 in the same period in 2007.
The biggest rise was in the East Midlands, where failures rose 54%.
Experian blamed the rise on the credit crunch, which is making it more expensive and more difficult for businesses to borrow.
The business services sector, which includes printing and equipment rental, saw the biggest number of failures, with 1,061 firms going under.
Experian warned that when companies fail, they can push others into insolvency that they may still owe money to.
"The message for businesses in this uncertain economic environment is clear. They need to exercise caution with regards to their risk exposure and the customers they choose to deal with," said Experian managing director Tony Pullen.
The figures are compiled from Companies House statistics and include liquidations, receiverships and firms closing by voluntary arrangement.