Dun & Bradstreet’s Q2 UK Industry report has revealed that retailers continued to face a challenging business environment throughout the first half of the year.
Between falling year-on-year sales, as reported by both the BRC and ONS, and a growing number of vacant stores, retailers are feeling the brunt of consumer uncertainty, particularly surrounding the political and economic uncertainty in relation to the ongoing Brexit crisis – leading to a decrease in purchases of big ticket items such as cars, with registrations down in 2017, 2018 and Jan-May 2019.
In spite of this, online retail sales continue to go from strength-to-strength, increasing from 4.2% in January 2008 to 18.2% in June 2019. This trend is likely to continue over the next few years, adding to the difficult conditions retailers are facing. Also worryingly, rising wages, higher fuel costs and more difficult access to credit also set to create problems for retailers in the long term.
Despite these challenges, however, the number of retail liquidations fell in Q2. Compared against 2018, numbers decreased by 6.8%, while in comparison to Q1, the number of liquidations went down by 10.7%. This comes after stark increases in previous quarters. Although retail liquidations currently account for less than a tenth of all corporate liquidations in the UK (382 out of 4,115), they attract a large amount of media attention, such as when House of Fraser and Debenhams reported further financial trouble, which eventually led to the latter going into administration in early April 2019.
This, in turn, impacts consumer confidence. Finally, retail prompt payments to suppliers and partners were at 36.6% in Q2, up from 35.5% in Q1, signalling a slight increase in on-time payments as retailers work to pay off outstanding credit as they brace for the impact of a no-deal Brexit.
Commenting on the report, Markus Kuger, Chief Economist at Dun & Bradstreet said: “In light of the challenging retail environment, we would recommend monitoring the retail sector closely: it is still experiencing a high level of stress as consumer patterns are shifting, while supply chains could become endangered amidst Brexit. Although the latest ONS results for July indicate that sales increased slightly, the overall picture is that sales are dipping year-on-year, as consumer confidence continues to drop.
Another by-product of the decline of the high street is that commercial property landlords could face an uncertain future, with the oversupply of retail space in town centres potentially driving rents down in the medium run. Ultimately until the UK has clarity on Brexit, many of these concerns will remain until, and potentially after, October.”