Carpetright trading difficulties

Just over a year ago, PCR discussed the worrying trend which had seen an increase in business insolvencies, with the UK high street being one of the main sectors severely affected and falling victim to the immensely challenging trading conditions.

This was highlighted in our article The Ominous Predicament of the UK High Street in April 2018 which used the example of Toys R Us explaining how the emergence of online shopping and a significant lack of investment played a key role in its administration. Shortly after the demise of Toys R US, a domino effect on other retailers set in, with well-known high street brands such as Maplin’s, Warren Evans, Homebase, Carpetright and even Arcadia Group either collapsing or experiencing severe difficulties causing them to undertake a restructuring process.

Of course, there is a plethora of reasons as to why the UK high street had experienced and is still experiencing an increase in insolvencies. Some of these reasons revolve around the fall in consumer confidence, an increase in rent demanded by landlords, the rise of the national minimum wage and an increase in the cost of borrowing. It is therefore no surprise to see that this trend has continued in 2019 with the uncertainty and lack of clarity over Brexit having an impact on several businesses. The whole economy has also suffered with a lingering ‘dark cloud’ shrouding clarity as to what the UK’s relationship will look like with the EU post Brexit, and some businesses sought to protect themselves ahead of 29 March deadline by stockpiling goods which has impacted on their working capital requirements.

According to official figures, it was recently reported that the number of UK companies going into administration had hit a five-year peak. A staggering 4,187 insolvencies were reported in the first quarter of 2019, and whilst these statistics also took into account liquidations and Creditors Voluntary Arrangements (CVA), they demonstrate a worrying rise in the amount of insolvencies being recorded.

The UK high street was unsurprisingly a major factor in these statistics with the Insolvency Service declaring that there were 451 high street firm administrations in the first three months of the year. Alarmingly, this was a 21.8 percent increase from the final three months of 2018 and the most recorded by the government agency since the first quarter of 2014. Perhaps we shouldn’t be entirely surprised by these statistics especially after one of the worst festive periods recorded by retailers in a decade over the Christmas period in 2018.

There is also a worry that several other firms are operating on the borderline of insolvency as well, and these tend to be known as “zombie firms”, with Big Four accountancy firm KPMG warning that as many as 14 percent of all UK companies could be classified under this title. They explain how a number of these firms are operating on low profitability, squeezed margins, limited cash, high leverage levels and a chronic inability to invest in the future - essentially surviving on low interest rates. Nonetheless, those firms who are being kept alive by low interest rates have created a drag on UK productivity, which continues to underperform in comparison to other G7 economies.

As things stand, we are operating in an extremely volatile market, and with the news of an increase in UK insolvencies, there is likely to be further scepticism about the immediate climate facing various industries from large to smaller sized businesses. Small businesses in particular need all the help they can get as Brexit uncertainty and other issues take their toll on businesses and consumer confidence. However, emerging issues appear to be creating further problems, especially if the government carries through on plans to move tax debts up the priority order for recoveries when companies become insolvent, above debts owed to suppliers, consumers and pension schemes for example. This could ultimately result in the suffocation of lending to small companies, which is the last thing small businesses need right now.

How PCR can help

Although the news about an increase in insolvencies could give a rather bleak outlook for some, it is important to realise that many companies are still flourishing and it is certainly possible for smaller business to survive if they are managed diligently and with the assistance of professionals who are regulated to provide sound advice on how to operate in the current climate. At PCR, we can provide regulated advice in assisting company directors in making informed decisions and allowing you to work around the pressures that many businesses are facing in today’s climate. We cannot stress the importance of seeking advice early as more can be done to provide the best possible outcome for a firm showing signs of distress.

For assistance in any insolvency procedures in general, please contact us on 0208 841 5252 to arrange a FREE initial consultation with one of our Insolvency Practitioners. Alternatively you can contact us on our Priority Contact Form, where we will look to get back to you as soon as possible.

Ahmed Ali
Practice Development Executive 

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