Unpacking Retail Insolvency Statistics

The retail sector often serves as a barometer of economic health. Recent statistics from the Insolvency Service confirm that corporate insolvencies in the sector have surged by 56% in the past year. In 2022-23, 1,942 retailers entered into insolvency processes compared to 1,243 the year before.

These corporate insolvencies, reaching their highest levels in almost a decade, have naturally sparked discussions about the sector's resilience and the challenges it faces in the current economic climate. As the fate of Wilko, one of the most recent high street names to go into administration, remains unclear, we take a look behind the statistics.

Key Takeaways from the Latest Statistics

Challenges in the Retail Sector

Like many other industries, the retail sector has been navigating unprecedented challenges over the last few years. The rise of e-commerce, changing consumer preferences, and the impact of the pandemic have all played their part in retail businesses struggling.

Pandemic's Impact

The pandemic accelerated trends that were already becoming more apparent in the sector. E-commerce and online shopping experienced unprecedented growth, while traditional high-street-based retailers struggled. Government-backed schemes designed to support distressed businesses (such as CBILS, temporary restrictions on enforcement action under CIGA, and temporary rent holidays), have now come to an end. Businesses that have failed to adapt since 2020 are now facing the consequences.

Inequality of Impact

Not all retail subsectors are being impacted equally. Grocery and essential goods retailers remain resilient, as do some luxury goods companies (whose customer bases aren't as significantly impacted by interest rate hikes and the cost of living rises).

Importance of Adaptation

Adapting to changing circumstances and consumer behaviours is something the retail industry has proven time and time again it can achieve. But Wilko is a prime example of a retailer that could not keep up with market competition, and failed to adapt to a changing customer base.

High Profile Retail Insolvencies

What's next for Wilko?

Wilko entering into Administration in July 2023 has resulted in uncertainty for its 12,500 employees who are now at risk of redundancy. The administrators from PricewaterhouseCoopers are still in discussions with potential purchasers, including Doug Putman, the owner of HMV in the UK, and Toys R Us in Canada.

There was interest from another potential buyer, with an offer apparently having been put forward from M2 Capital, a restructuring specialist that owns the Como hotels group. In the last week of August that offer then fell through.

The administrators, no doubt conscious of ever-increasing costs including staff wages, announced on 5 September 2023 that they had accepted an offer from B&M European Value Retail to purchase 51 of Wilko's 400 stores for £13 million.

Wilko has been a stalwart of Britain's high streets for decades, and its demise would have "significant implications" for other businesses, according to the British Independent Retailers Association (Bira). Its collapse serves as a warning for other traditional retailers, and there is no doubt that if the Wilko brand can survive, it will need significant investment and rejuvenation to succeed in the future.

Restructuring Plans: an alternative 

There are alternative processes available that aim to avoid formal insolvency processes becoming necessary, ultimately to rescue retail businesses and jobs where possible.

A recent example is Clinton's Cards, which had its Restructuring Plan approved by the Courts recently. While the Restructuring Plan substantially compromised Clinton's debts to its landlords and local councils (for unprofitable stores) and saw 38 stores closing, it enables Clintons to continue to trade from its remaining 187 stores, protecting staff from wider spread mass redundancies.

Other recent high-profile Restructuring Plans within the sector, which have been sanctioned by the Court, include Prezzo and Fitness First.

Summary

While the recent insolvency statistics show that businesses are struggling, retailers have in fact been feeling the heat for some time. Of the 1,942 businesses that entered into insolvency over the last year, it is worthwhile considering how many of those would have done so earlier if they had not been propped up by COVID support schemes?

Despite the challenges faced by retailers, UK total retail sales increased by 1.5% in July 2023 and by 4.1% in August 2023, according to the British Retail Consortium. Retail businesses that adapt and innovate can continue to grow and thrive even in difficult circumstances. Those that fail to do so will likely form part of next year's insolvency statistics.