How has the retail sector fared over the past five years?
With the latest set of monthly corporate insolvency data being published by the Insolvency Service – we can now finally analyse in full how the twelve months of 2023 impacted various industrial sectors in the UK and compare it to the previous four years.
The first in the series will be how retailers have navigated the various challenges they faced in 2023.
Following the ongoing disruptions of the pandemic, retailers faced various continuing and new challenges that demanded strategic agility and adaptability as well as taking insights and lessons from the data and experiences available.
Retail Insolvency Figures 2019 to 2023
| 2019 | 2020 | 2021 | 2022 | 2023 | Totals | |
| Overall | 2,457 | 1,687 | 1,722 | 3,284 | 3,936 | 13,086 |
| Motor Vehicles | 371 | 261 | 331 | 565 | 632 | 2,160 |
| Wholesale | 780 | 549 | 461 | 915 | 1,091 | 3,796 |
| Food, Alcohol & Tobacco | 144 | 93 | 110 | 196 | 260 | 803 |
| Household items | 199 | 130 | 95 | 215 | 290 | 929 |
| All other (clothes etc) | 375 | 277 | 253 | 399 | 511 | 1,815 |
All figures from The Insolvency Service
Looking at the overall number of retail insolvencies over the past five years we can see that they saw a 69% decrease during the Covid-19 pandemic affected years of 2020 and 2021 with companies struggling but also benefiting from various support measures including bounce back loans and the suspension of winding up petitions and statutory demands.
These figures did rise again precipitously once these restrictions were lifted and the economy began to recover with figures surpassing pre-Covid in 2022 and doubling from their 2019 total last year alone.
All areas within retail saw year-on-year increases from 2021 to 2023 – wholesale retail saw the biggest proportion of insolvencies over the past five years with 29% of the total with motor vehicle retailers providing 16.5%.
The retail insolvency fallout continues
According to the Centre for Retail Research (CRR), UK retailers cut almost 120,000 jobs last year while total store closures reached a total of more than 10,000 in 2023.
Their latest figures showed that 199,405 retail jobs were lost and 10,494 stores shuttered during the period including such big names such as Wilko, Victoria Plum and Tile Giant closing down.
While these numbers look bad in isolation, the number of annual store closures was actually down 38% with redundancies also down 21% compared to 2022 which was retail’s worst year since the recession of 2008.
2023 did see a continuation of the trend which started in 2022, where most store closures and retail jobs lost were caused by company reorganisation and cost cutting programmes rather than actual business failures or insolvencies.
Professor Josua Bamfield, director at the CRR said: “This ‘improvement’ is probably best viewed as a trend that is ‘less bad’ rather than ‘good’ and doesn’t reflect any real strength in the sector.
“The cost-of-living crisis, inflation and increases in interest rates have led many consumers to tighten their belts, reducing retail spend.
“Retailers themselves have suffered increasing energy and occupancy costs, staff shortages and falling demand that have made rebuilding profits after extensive store closures during the pandemic exceptionally difficult.”
Why have retailers been struggling?
There are several factors that have all contributed in varying degrees to the increasing numbers of retailers restructuring or closing down:
- Disappointing Chritstmas sales
Retailers suffered their worst decline in sales in nearly two years in the run-up to Christmas in 2023.
According to the Office of National Statistics (ONS), sales volumes fell by 3.2% in December
Helen Dickinson, chief executive of the British Retail Consortium (BRC) said: “The festive period failed to make amends for a challenging year of sluggish retail sales growth, as weak consumer confidence continued to hold back spending.
“2024 looks to be another challenging year for retailers and their customers, and spending will continue to be constrained by high living costs. Retailers will also have to juggle various cost pressures, including the rise to business rates this April.”
She continued: “This will be compounded by other emerging issues, such as the disruption to shipments from the Far East via the Red Sea. Political parties must consider this backdrop when they set out their plans for retail in manifestos so they can help support the industry to grow, invest, and serve customers.”
- Cost of Living Crisis
As household budgets continue to tighten due to stubbornly high inflation and relatively stagnant wages compared to recent rises, consumers have become more cautious with their spending, prioritising essential purchases over discretionary items.
This combined with the increased pressure on their profit margins as well as increased operating costs, including higher wages, elevated supply chain expenses, and rising rents. Many retailers are struggling to stay competitive with big brands.
- Business Rates
The regular property tax paid by a physical business is based on hypothetical rental values which many directors feel are unrealistic and outdated.
This is particularly vexing for retailers as over 25p in every £1 of business rates come from the sector.
Rents paid by shops have been declining as stores close and new occupants become difficult to find but the decline in rent has not led to a fall in business rates.
Even those whose sales have risen, such as supermarkets, have faced sharply-increased costs from complying with the new regulations to protect the public and their staff.
Online retailers of course pay business rates at the reduced levels applicable to warehouses. Many feel that a satisfactory and sustainable future for high streets will only occur if online retailers pay the same rates as store-based retailers or if there are other equalisation measures brought in by government.
- Lingering effects from supply chain disruptions
While the conflict in Ukraine and disruption in the Red Sea get the headlines, ongoing port congestion, raw material shortages and price increases contributed to retailers continuing to struggle with getting the products they needed onto shelves.
- Changes in customer behaviours
The increased and ongoing dominance of online shopping continues to put pressure on retailers forcing them to invest more in robust digital experiences and increase toward a seamless integration between their physical and online offerings.
Coupled with changing consumer preferences with a growing focus on sustainability and ethical sourcing, retailers are under pressure to adapt their offerings to meet the ongoing changing values of their customer base.
Sadly 2024 isn’t looking much brighter for the retail sector with 137 stores closing in January alone with the loss of over 2,500 positions.
If you’re a worried retailer and concerned about what the future holds for you and your business there is still time to get in touch and speak to one of our experts.
We offer a free initial consultation for anyone who wants to find out what they can do to protect their business or close it quickly and efficiently, letting them move onto their next professional challenge rather than struggle on against worsening conditions and lengthening odds that things might get better before they get worse.
If there is scope and space to look at restructuring the business and restore it to viability then this will always be a preferable options, especially for creditors, but there are many other factors directors have to take into account before making their decisions.
They may have more options than they think but only if they take action early while they can still positively impact the future of their business whether it’s in retail or any other sector.