Categories
Cash Flow & Forecasting General Insolvency Rescue, Restructuring & Recovery Turnaround

Will we see more retail failures in the New Year?

 

With a quarter day looming in December many retailers will be hoping for healthy sales in the run-up to Christmas in order to pay their rent.

We are led to believe that an economic recovery is consolidating and that 2014 will continue the upward trajectory, but on the High Street the picture is not so clear.

There is already some evidence that the pre-Christmas rush has been delayed with consumers waiting for last-minute reductions. Figures from the accountant BDO showed that High street sales fell in the first week of December by 4.1% in non-food sales to December 8, while online shopping rose by 25%.

Fashion stores seem to have suffered worst with sales in the first week of December down by 5.9% and H & M already launching a winter sale offering reductions of up to 60%.

Whether High Street shopping picks up in the next few days remains to be seen, but there is a likelihood that with wages lagging behind the cost of living and significant energy cost increases the much vaunted consumer-led recovery may not be as lively as hoped.

Complicating the picture is the growth of the “buy local” movement, which may encourage more shoppers to patronise their small, local independent stores for both food and non-food items, especially unusual gifts.

Looks like it might be an interesting start to the New Year.

Categories
Banks, Lenders & Investors General Rescue, Restructuring & Recovery Turnaround

Update

In view of our comments in the last item it is no surprise, therefore that the struggling music, films and games retailer HMV has announced today (December 13 2012) that it is in talks with its banks, following a 13.5% reduction in sales in the six months to October and amid fears of a “probable” breach of its banking agreements next month.
Whether new initiatives put in place by the company’s new Chief Executive, Trevor Moore, who took up his post in September, will be enough to help HMV take advantage of the run-up to Christmas to significantly improve on sales remains to be seen. Like many retailers it will have December deadlines looming.

Categories
Banks, Lenders & Investors General Rescue, Restructuring & Recovery

Season of Goodwill?

December marks a “pinch point” for many businesses, particularly for the high street retailers.
The quarter day – when quarterly rents to landlords fall due – is on December 25. About then most businesses will be facing their next pay run of salaries for employees and possibly of payments to additional temporary staff who have been taken on to cover the festive season. Then there is a VAT return with VAT to pay on the Christmas trading.
If all has gone well the seasonal stock will have been run down and there will be a lot of cash in the bank from the Christmas trading.
The question is what will the banks do at this point? Are they lining up to pull the plug on businesses at the point in the year when their clients have most cash? Or the point when their clients have significantly reduced the overdraft? Arguably Christmas is the best time for a secured creditor, such as the bank, to call in its loans, or reduce the overdraft. The banks don’t even need to pull the plug, they can just take the cash to offset a loan or simply reduce the overdraft facility.
With banks seeking to repair their balance sheets and the uncertainty ahead, are we likely to see a sudden upsurge in insolvencies immediately after the Christmas period?
It is estimated that 160,000 businesses are classified as ‘zombie companies’, defined as those who are surviving by only servicing interest with little prospect of ever repaying the loans. Since the start of the recession it may not have been in the interests of the banks as secured lenders to pull the plug, however Christmas can be the best time for them to consider such an option.
Companies who are just servicing interest ought to be concerned. They ought to be seeking advice before the bank swoops.