Critical financial distress rises for retail and hospitality sector in Q4

Year-on-year ‘critical’ distress rise of 16.7% for retailers and 14.1% for bars and restaurants even as ‘significant’ distress levels fall.

• 1,947 general retail businesses and 1,034 bars and restaurants in ‘critical’ distress – an increase of 16.7% against the same period last year. 
• ‘Significant’ distress fell vs last year by 5.9% to 25,090 general retail businesses. 
• Online retailers saw a larger increase in critical distress than those with physical stores – a rise of 20.5% year-on-year vs 14.4.% year-on-year. 
• Bars and Restaurants in ‘critical’ distress rose from 995 in Q3 2025 to 1,034 in Q4 2025.
• Complex picture of business leaders exiting through voluntary and compulsory liquidation or disposal, delaying investment ahead of Budget as well as ‘golden quarter’ outcome contributing to rise in ‘critical’ and fall in ‘significant’ distress.

The latest Christmas “Red Flag Alert” from Begbies Traynor has revealed a year-on-year increase in the number of critically distressed general retailers (16.7%) and bars and restaurants (14.1%), with online only retailers seeing a higher annual rise in ‘critical’ distress than those with physical stores ahead of the Christmas break. 
 
As of 15 December 2025 – with some of the quarter remaining – 1,947 general retailers were in ‘critical’ financial distress, this was largely driven by online only retailers who saw a 20.5% year-on-year increase vs a 14.4% year-on-year increase for those with physical stores.  
 
However, there was a 2.4% fall in general retailers in ‘critical distress’ from the previous quarter (Q3 2025: 1,995) as the ‘Golden Quarter’ took effect. In contrast, bars and restaurants in ‘critical’ distress rose from 995 in Q3 2025 to 1,034 in Q4 2025. 
 
Meanwhile, the number of general retailers and bars and restaurants in ‘significant’ financial distress has fallen. During the past year general retailers fell 5.9% (Q4 2024: 27,660, Q4 2025: 25,090) and bars and restaurants fell 9.9% (Q4 2024: 10,618, Q4 2025: 9,571). Online only retailers are also driving the fall, with a drop of 9.1% year-on-year, compared to a decrease of 3.9% year-on-year for retailers with a physical presence. 

Julie Palmer, Regional Managing Partner at Begbies Traynor, said:

“Even after the ‘golden quarter’ started better than expected, reduced consumer confidence and economic uncertainty in the run up to the Budget meant that spending from consumers took a real hit. 
 
“Combined with this has been the delayed effect of Black Friday on retailers, with consumers holding back purchases until late November, which has led to a price war which has further reduced retailer margins.  
 
“If anything, the situation with the hospitality sector is even more precarious – especially for bars and restaurants. Typically, this sector operates on narrow margins and even small changes to the cost base can have a devastating impact. This year the sector has dealt with a tidal wave of challenges including increases to both employers NI and the national minimum wage, as well as a cost of living squeeze reducing consumers disposable income. In addition, changes to the business rates regime will negatively impact this sector with more than 3,000 small pubs having to pay business rates for the first time. 
 
“With increases to business rates and minimum wage alongside HMRC cracking down to recall unpaid taxes, it seems almost inevitable that 2026 will witness increased insolvencies in this sector, well beyond the typically lean months of January and February.”