Chill wind blowing through the retail sector

 

Very often the best indicators are the least sophisticated. The UK retail sector remains in a very fragile state – the clearest evidence of this can be seen as you walk down any High Street.

One in 10 retailers are now classified as “zombie” businesses who find themselves in the precarious position of servicing the interest on their debt but unable to repay the capital.

Retailers are struggling against the backdrop of poor Christmas sales and the adverse weather for the first quarter of 2013 which has severely impacted on footfall.

At the same time the rising number and popularity of charity shops tell underscore that many families are struggling. Consumers struggle with debt and job insecurity.

As the knock on effect percolate back down the chain many businesses will suffer.

These conditions will lead to some extreme measures e.g. the recent demand from the owners of Laura Ashley asking for “an immediate price reduction of 10% from suppliers” an action which has been described as tantamount to “killing its own suppliers”.

 External factors by definition are difficult to handle but at the same time in-house disciplines can at least provide some insulation.

Cash-flow will remain difficult to manage so as always strict governance of Debtor and inventory control will provide some measure of comfort.