Updated: 22nd December 2020
In the run-up to Christmas, new data from leading insolvency firm, Begbies Traynor, has revealed the full impact of the Covid-19 crisis and tough trading conditions, which shows that nearly 40,000 (39,232) retailers – including both online and bricks and mortar stores – are now in significant financial distress.
This stark figure from Q4 2020 (1 October – 9 December) is an increase of 24 percent on the same period in 2019 and is up 11 percent on Q3 this year. The figures also show that over 20,000 high street retailers and over 11,500 online retailers are now in difficulty – a rise of 22 percent and 27 percent respectively since the run up to Christmas 2019.
Commenting on the figures, Julie Palmer, partner at Begbies Traynor, says: “Without doubt, this has been one of the toughest years ever experienced in the retail sector. While many industries have been hit hard, retail – which was already suffering a crisis of confidence – has been shaken to its foundations. High-profile administrations such as Arcadia Group and Debenhams not only threaten thousands of jobs, they also raise questions over the future of the high-street as we know it, and I expect there to be more as we enter the New Year.
“That said, while Covid-19 has undoubtedly had a huge impact, the danger signs were there before the pandemic forced so many closures. For example, Arcadia and Debenhams were both already struggling as they had failed to keep up with more dynamic competitors with a strong online offering. However, simply being online is not automatically a ‘silver bullet’ – as these figures show, securing market share online is wildly competitive and not everyone will succeed.”
In addition to retail, this year, the figures from Begbies Traynor also cover the hard-hit hospitality sector. In a period that would usually have seen Christmas parties, extensive travel, and tourist visitors to festive attractions, the lack of activity has hit the hotels & accommodation industry the hardest, with over 7,500 now in significant distress, up 34 percent on the same time in 2019 and 20 percent since Q3 2020. Similarly, bars & restaurants are feeling the full force of a highly turbulent year, with the number of struggling businesses up 18 percent on Q4 2019 to nearly 21,000.
Julie Palmer continues: “The hospitality sector has been brought to its knees by the Covid-19 restrictions, with many operators either having to shut or completely change their business models to suit differing tier-based restrictions. While the summer and the ‘Eat Out To Help Out’ scheme provided some respite, the return to partial lockdowns and the new tier-based model means, unfortunately, many businesses in this sector will struggle to survive.
“The Christmas and New Year period is a crucial revenue driver for these businesses, which is why we’re seeing such significant increases in the numbers in distress this year, compared to the same period in 2019.
“Looking to 2021, although there is a speck of light at the end of the tunnel with the vaccine now being rolled out, uncertainty remains, not just in terms of the post-Covid-19 picture, but how Brexit will impact – particularly on travel and trade with the EU. For the hospitality sector, hopefully the easing of restrictions will give consumers confidence to return to bars and restaurants, and book breaks in hotels and other accommodation. For retail, some major modernisations and strong leadership will be crucial to entice shoppers back, and even retailers that have proven resilient will need to keep innovating.
“Although there are increasing expectations that 2021 will bring more positivity, the effects of Covid-19 will continue to create a chill throughout the whole of the year and beyond, with it likely we are only seeing the tip of the iceberg for financial distress amongst businesses currently. Both recent history and these figures show yet more high profile retail and hospitality insolvencies are probable as a combination of onerous debt and the structural changes brought about by the Coronavirus pandemic continues to take its toll.”
Julie is a law graduate who qualified with Price Waterhouse in 1994. Julie joined Smith & Williamson in 1997 and became a partner in 2001. With Mike Stevenson, Julie set up Middleton Partners offices in Salisbury and Southampton, both of which are now part of Begbies Traynor.
Julie is a member of the Insolvency Practitioners Association and is a Fellow of The Association of Business Recovery Professionals. Julie deals with all aspects of Corporate Recovery and turnaround work and takes all form of personal insolvency appointments.