The UK retail sector rightly prides itself on its resilience and in finding new and innovative ways to respond to changing market conditions.
Just look at the way the sector responded during the pandemic, pivoting to online sales, diversifying revenue streams and sharing premises.
But the conditions retailers now face, amid the cost of living crisis, are putting even the most resilient of them to the test, whether they trade online, in bricks and mortar or both. You’ll have seen some of the stats: UK consumers are expecting to reduce their non-essential Christmas and Black Friday spending by £4.4 billion this year, according to Metapack; December retail footfall is forecast to be 18% down on 2019, says Springboard; and four in 10 Brits say they won’t be able to afford Christmas, according to Sitecore.
This means that, for many, the approaching peak Black Friday and festive seasons could be make or break.
To prepare for this next challenge, firms need to act now. We hope that many are developing recession management plans to outline how they will adapt to these new market conditions, such as by finding ways they can protect loyal customer bases, target switchers, hone their needs-offer gap, take out ‘bad costs’, and continue to look outwards as well as in.
But nonetheless, we at Atradius expect a big rise in insolvencies in the sector. To date this year, 900 retail firms across England, Wales and Scotland have declared insolvency – a steep upswing on 2021.
One of the major reasons firms find themselves filing for insolvency in an economic downturn is the fall down of supply chains, which will have huge implications for retail firms and their suppliers during a recession. Many profit warnings have already been issued by listed UK retailers such as Made.com, Tesco and Joules, with the HGV driver shortage, and supply chain, freight, and energy costs cited. But if a retailer fails to pay on time – or at all – the domino effect on supplier firms is wide-reaching, particularly at times when cash is tight.
Businesses almost never go into insolvency overnight, and there are a number of warning signs retail suppliers need to look out for beyond just late payments, to guard against the domino effect crumbling supply chains can have on firms.
Before partnering with a retail customer, suppliers should take advantage of full credit lines, monitor any changes to their customers’ banks or observe high turnover among senior managers at the firm. In addition, it’s never been more important to ensure you have trade credit insurance.
So will Black Friday and the festive season be make or break for retailers? This year, the answer unfortunately could be yes.
Owen Bassett
