New analysis by Mazars has found that the number of insolvencies by retailers has increased 19% in the past year to 2,195 in 2023/24 up from 1,843 in 2022/23.
High profile retail insolvencies include The Body Shop in February, as well as fashion brand Ted Baker and online luxury fashion retailers MatchesFashion and Farfetch.
Cautious consumer spending, and higher interest rates have also impacted the rise. Retail sales have also dropped, with total in-store and online sales falling 2.2% in March.
E-commerce insolvencies have reached their highest level in five years, with 615 reported in the past year. Despite inflation starting to moderate, retailers continue to face challenges such as high interest rates and rising staff costs. The rise in the national living wage and business rates are also concerns.
The British arm of The Body Shop has officially entered administration, casting uncertainty over 200 stores and jeopardising thousands of jobs.
Rebecca Dacre, Partner at Mazars said “We are unlikely to see the retail sector trading comfortably until interest rates start to fall. Despite inflationary pressures easing, high interest rates and low consumer spending continue to persist.
“The rise in the National Living Wage is the largest on record and some face a sharp rise in business rates from April.”
What is retail insolvency?
Retail insolvency refers to the financial state of a company in the retail industry where they are unable to pay their debts and continue operating their business.
This can happen for various reasons, such as high interest rates, rising staff costs, and economic factors that affect consumer spending. When a retailer becomes insolvent, it may lead to bankruptcy or administration, which is when an external administrator takes over the management of the company.
High interest rates make it difficult for retailers to borrow money, limiting their ability to invest in their business and maintain cash flow. This can be especially challenging for small businesses with limited resources. Rising staff costs, including wages and benefits, can also put strain on retailers’ finances.
