(1 September 2009)

The retail sector will dwell in the doldrums for longer than other industries, with the number of business failures rising in 2010, according to the latest Industry Watch report by accountants and business advisors, BDO Stoy Hayward LLP. Going forward, rising unemployment will likely cause a decline in consumer spending in 2010, driving up insolvencies. In tandem, lower wage growth and reduced consumer credit will also contribute to the increase in business failures, with 4,630 expected in 2009 rising to 5,070 in 2010.

To date consumers have shown remarkable resilience in the face of the recession. Retail spending has held up unexpectedly well throughout the downturn; Office of National Statistics data shows that during the second quarter retail sales volumes were up by 0.7 per cent quarter-on-on quarter and 1.3 per cent compared to the second quarter of 2008. Despite this, many retailers have paid the price of heavy discounting which has left profit margins painfully thin.

Tony Nygate, Retail Business Restructuring Partner at BDO Stoy Hayward, said: “Unemployment has risen less than the economic contraction originally suggested, with a flexible labour market allowing employers to reduce hours and wages rather than make redundancies. These factors have helped maintain retail spending surprisingly well in the face of recession and have been instrumental in preventing even more retailers going into liquidation.

“However retailers can expect the worst of the recession to hit in 2010 when rising unemployment and structurally lower consumer credit will dampen prospects. That means retailers will face a particularly tough 2010, with our research predicting over 5,000 retailers will go out of business next year.”