Over one in five (22%) retail businesses in the UK aren’t confident of trading through to the end of 2023, according to new research published by FRP.
The specialist business advisory firm, which has advised on the administration of high-profile retailers including Debenhams and Edinburgh Woollen Mill, polled 250 large and mid-sized retailers across the UK – with the findings presenting significant concerns for the sector.
With three in five (60%) retailers citing increased energy costs as the biggest pressure on their profit margins, the research found that 22% of respondents fear insolvency this year if the government continues with its plan to reduce relief on energy bills from April onwards. Indeed, a third (33%) were keen to see the government increase energy support into the new tax year.
With two-thirds (66%) of retailers having seen an increase in operating costs in 2022 – by 21% on average – the industry faces a number of market headwinds, including increased wholesale, labour, logistics and warehousing costs. Energy will continue to be retailers’ most significant concern over the next 12 months though, with more than half (52%) citing it as the biggest anticipated pressure on their margins.
Just over a quarter (26%) of retail businesses changed their commercial energy supplier last year, while around one in six (17%) will do so in 2023 according to the findings.
The high volume of supplier switching comes as the sector looks to improve its cash position through a range of initiatives. FRP found that more than a third (36%) of retail businesses have passed on general cost increases to their customers in the last year, with similar numbers (32%) expecting to do so this year. Just over a fifth (21%) took on new debt in 2022, with a significant majority (68%) of all respondents expecting to seek an increase in debt facilities from lenders this year.
The move comes as retailers anticipate a wave of creditor pressure in 2023. Over seven in ten (72%) of retailers expect creditor pressure4 this year, including CCJs and winding up petitions, with just over a fifth (21%) expecting pressure to be extreme.
Phil Reynolds, restructuring advisory partner and retail specialist at FRP, said: “These are incredibly turbulent times for retailers. Inflation is pushing up operating costs and dampening consumer confidence, with the looming recession likely to ensure that conditions remain challenging for some time to come.
“However, against such a dynamic backdrop and strong headwinds, the sector is working hard to adapt – with the majority expecting margins to hold up through the next six months and beyond. For the still worryingly high number of businesses concerned about their future, keeping a close eye on the fundamentals – ensuring cash flow forecasts are up-to-date, and tightly managing working capital – will be critical. Management teams will need to ensure that they have multi-level contingency plans in place for every possible scenario as, ultimately, those that thrive will be those who can be flexible and respond positively to change.”
