The number of UK retailers on the brink of collapse has risen by a quarter in the final three months of the year, driven by a combination of rising business costs and weak consumer confidence, according to a report.
The proportion of retail businesses classed as being in “critical” financial distress increased by 25% to 2,124 in the fourth quarter compared with the previous three months, the insolvency specialists Begbies Traynor said.
The general retail sector is under most pressure, with a 29% quarterly increase in businesses in critical financial distress, rising to 1,457 from 1,127 in the third quarter.
In the food and drug retail sector there was a 17.2% quarterly increase, with the number of businesses facing collapse rising from 569 in the third quarter to 667 by the end of the 11th week of the final quarter of this year.
Overall, a total of 28,747 retail businesses in the UK are facing “significant” financial distress, down on the 34,494 in the same quarter last year, the report found.
“This year has highlighted the resilience and adaptability of some UK retailers, but the sector remains under significant strain,” said Julie Palmer, a partner at Begbies Traynor. “Clearly, some retailers have found ways to manage financial pressures effectively, but others, particularly in general retail, are struggling under the weight of rising operational costs and squeezed consumer spending.”
Fewer consumers ventured out to high streets and shopping centres to take advantage of the Boxing Day sales this year.
Footfall across UK retailers was down 4.9% year on year on Thursday, according to data from MRI Software.
High street destinations had the biggest decrease in shoppers, down 6.2% year on year. Footfall to shopping centres declined 4.2%, compared with Boxing Day last year, while retail parks fared a little better, down 2.9% year on year.
Many shoppers focused on pre-Christmas shopping, with footfall levels up 18% on Christmas Eve, compared with last year.
Shares in some UK retailers fell on Friday, as traders digested the drop in Boxing Day footfall.
Shares in Next were down 2% on Friday, making the clothing and homewares retailer the top faller on the FTSE 100.
Meanwhile, the online electrical retailer AO World was one of the biggest fallers on the FTSE 250, down more than 4%.
Last year, Boxing Day footfall grew 4%, compared with 2022, fuelled by booming high street shopping up 8.6% year on year.
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Many under-pressure retailers kicked off their Boxing Day sales early this year, giving shoppers the opportunity to grab bargains online without making the trip to the shops.
MRI Software’s consumer pulse report found 53% of shoppers planned to complete at least half of their Christmas shopping online.
“After a sluggish start in December, retailers have been playing catchup ever since as they’ve chased critical Christmas trade,” said Andy Sumpter, a retail consultant at Sensormatic Solutions. “And this tail-chasing prompted many to launch Boxing Day sales much earlier than usual in a bid to drive pre-Christmas revenues, with some retailers even offering discounts that would traditionally have been held for Boxing Day as early as mid-December.”
However, there was an 8% increase in footfall across all retail destinations as of 12pm on Friday, compared with the same date last year, MRI Software figures showed. It coincided with the reopening after Boxing Day of big retailers such as John Lewis, Marks & Spencer, Next and Aldi.
Despite the quarterly increase in retailers on the brink of collapse, the number of UK retailers in critical financial distress has fallen slightly on an annual basis, from 2,142 in the fourth quarter last year.
Palmer said there was an expectation of “elevated” insolvency levels next year as the measures announced in the autumn budget – including planned increases to employers’ national insurance contributions, the increase in the minimum wage and adjustments to capital gains tax – affect businesses.
“Even for more resilient businesses the pressures remain relentless and many will likely face financial challenges next year as they navigate these compounded difficulties,” Palmer said. “With mounting challenges on the horizon, weaker businesses are likely to find little joy as we enter the new year.”
