Threat to household names of retail sector

Jan 6 2010 by Peter McCusker, The Journal

OVER a dozen household names could disappear from North East high streets this year, in a repeat of last year’s retail sector clear-out

In the first few months of 2009, around 22 well-known high street retailers went into insolvency – and now, according to a survey of R3’s members, a further 18 household names await the same fate in the first few months of 2010.

Twin factors have been identified as being the primary driver of this trend, with retailers deliberately delaying starting insolvency proceedings until the New Year, to try to recoup the money they need over the festive period, and creditors of these failing businesses also hanging back, in the hope that they will receive higher returns due to increased takings over Christmas.

Compounding these factors, more than three-quarters (76%) of the R3 members surveyed believe rising unemployment will result in less consumer spending, with 86% of them predicting this reduction in spend will be another factor pushing many retailers into insolvency in early 2010.

Signs of economic recovery are also unlikely to help retailers, with 85% of insolvency experts saying this will prompt creditors to start acting more aggressively, as assets rise in value. With the VAT increase in January, the first quarter of 2010 looks bleak.

Rising unemployment and decreased spending in the lead up to Christmas, coupled with heightened creditor aggression in the New Year, leaves the retail sector at risk of another bloodbath.

While it would be comforting to think that the worst of the downturn is over, it’s worth remembering that insolvency peaks usually happen after a recession ends.

R3 is urging any retailers, whether large or small, who think they may be facing financial problems to seek advice early.

The recent case of creditors agreeing a CVA in the case of Blacks Leisure shows there are insolvency and rescue procedures available to stave off liquidation, and these procedures could help many businesses currently in the ‘at risk’ zone.

Jim James, North East regional chairman of R3 and head of the insolvency and corporate recovery unit at Newcastle-based law firm Ward Hadaway.