Retail Bankruptcies Set to Rise in 2013 Amid Economic Weakness

The number of retailers filing for bankruptcy has continued to increase in 2012 and is expected to rise further in 2013 as Britain's high street continues to suffer from tough economic conditions, suggests a research report.

A study by business advisory group Deloitte revealed that 194 retailers fell into administration in 2012, up from 183 in 2011 and 165 in 2010.

This is in contrast to a 9 percent decline in total business insolvencies during the year to 1,833. The industries most affected by the economic difficulties of the past five years, including hospitality and leisure, manufacturing and property and construction showed an improvement this year, Deloitte said.

Nevertheless, retail administrations in the fourth quarter declined to 37 from 42 in the year-ago period.

The past year has witnessed failures of high-profile businesses such as Peacocks, La Senza, Blacks, Game, Clinton Cards, JJB Sports and Comet which resulted in thousands of job redundancies.

"Christmas trading appears to have been reasonable, though not spectacular and not enough to prevent insolvencies in the first quarter of 2013," said Lee Manning, restructuring services partner at Deloitte.

Deloitte also expects further distress in the retail sector in 2013 due to the prevailing tough economic conditions.

"These figures are a stark reminder of the difficulties which continue to face the high street. Constrained household budgets and the structural challenges facing the sector mean it is certain that we will see further distress next year.

"There will always be a need for physical retail space but at present, too many retailers have too many stores and 2013 is likely to be marked by further closure programmes, both within and outside of formal insolvency processes".

Britons have become more cautious with their spending habits, after they found it difficult last year to manage their budgets as pay increases failed to keep up with inflation. Despite an improvement in purchasing power with inflation having eased later in the year, consumers preferred to stay away from big purchases.

"Consumer confidence remains fragile and where we have seen some respite through lower inflation, this has not translated into increased spending with many consumers preferring to pay down existing debt or save. Strong consumer spending growth is not likely to return any time soon which makes it essential that retailers address the fundamental issues affecting the industry - store portfolios and multichannel".

In line with the growth of e-commerce, the retailers should consider offering flexible delivery or collection options for consumers to stay in business, Deloitte noted.

A separate report by the Centre for Retail Research, involving medium or large retail businesses, said 2012 has been the worst year for the retail sector since 2008 with 52 businesses gone bankrupt, 4,000 stores closed and 48,000 employees gone jobless.

The Centre attributed the situation to "a second economic downturn causing weak retail sales, the failure of a few retail giants which bumped up the figures for affected employees and stores; and the exiting of many companies that could survive a year or so of recession but not four years of low profits or losses".