The Rise of the Retail Insolvency

The severe difficulties facing the retail sector have been well ventilated not just within the sector itself but also in the national press. 

In 2011 we lost Barratts, Oddbins, and Habitat. Blacks Leisure has just been sold, as has La Senza and now Peacocks is seeking a buyer. Hawkin's Bazaar, Barratts Priceless and D2 Jeans are further recent casualties, and many observers think that it is only a matter of time before HMV succumbs as well.

Dark clouds are gathering

Some commentators are of the view that conditions are now worse than they were at the end of 2008, which was acknowledged to be one of the worst periods in a generation for the high street, with the likes of Woolworths, Zavvi and MFI collapsing. 

But at that time the retailers had enjoyed a relatively good run up: whilst sales were down, margins were, by and large, holding up. 

Unfortunately, the position now is that retail has been hit by a double whammy, as poor sales performance coupled with low underlying profitability are making certain businesses unviable for the future. 

December 2011 saw a plethora of deals and promotions in most retail outlets, but the problem with that is, as the figures have been announced this month, profit margins have been eroded.

The victims

It appears to be widely accepted that the difficulties for the retail sector will continue causing not only further job losses, but also an increase in shop vacancy rates. 

This also spells trouble for landlords, because, if they are not already, they will soon be suffering from too many empty units. It could be that the retail property sector is the next one to experience severe difficulties.

Suppliers to the retail sector will also be suffering, because if they have lost significant customers in the sector, their own profitability could well be adversely affected.

Trouble ahead for directors

Insolvency solicitors tend to become involved with such high street victims after the insolvency practitioners. 

Since mid-December, however, I have noticed a considerable increase in the level of work activity for insolvency lawyers. I suspect that this is going to continue throughout at least the first half of 2012.

Many of the companies that are now in administration, or shortly entering it, will probably, subsequently, go into creditors' voluntary liquidation. 

It would not surprise me to see in some 18 months to three years a significant increase in the number of wrongful trading actions brought by liquidators against directors of companies who knew, or ought to have concluded, that there was no reasonable prospect of avoiding insolvent liquidation. 

That could have serious personal repercussions for the directors of certain failed or soon-to-fail retailers. 

I also expect the number of directors' disqualifications to increase.

The lack of confidence throughout the sector, and indeed further afield, is now self-evident. So is its adverse knock-on effect. Further job losses are inevitable.

The retail sector will have to brace itself for a bumpy ride in 2012. While I do believe that the sector will survive, the question remains what form it will take.

This article first appeared on the London Loves Business website on 25 January 2011.