Hundreds of UK retailers to go bust in 2009

With recession in the UK forcing many consumers to cut spending, hundreds of retailers are expected to join fallen retailing giant, Woolworths.

Financial pressures on retailers is expected to mount after they resorted to massive discounts to attract reluctant shoppers, in a bid to clear their shelves during what should have been the most profitable festive season.

This would lead to thousands of retailers' employees losing their jobs in 2009, adding to mounting joblesness in Britain.

According to retail analyst firm, Experian, and also insolvency firms, more than1,600 retailers in the UK will be forced to shut shop as consumers shun shopping due to high unemployment, recession and the down swing in house prices.

Under huge pressure to increase their sales during the festive Christmas shopping season, nearly 82 per cent of  retailers induced shoppers with discounts as high as 40 per cent, normally offered after the festive season to cleear unsold stocks.

Analysts say  a 20 per cent discount reduces a retailer's profits by half and by doling out 40 per cent he does not make any profit at all, while still having to pay wages, power bills and taxes among others.

They even say that giving discounts during festive season is a big mistake as customers do not expect any discounts during that period and when retailers bring the prices back up again, consumers hesitate to buy when they have seen the same product selling for 40 per cent less.

According to Experian, the discounts may have brought back some customers as retailers saw a 12.8-per cent increase during Christmas sales but overall sales were down 3.1 per cent for the month.

Last week, the Confederation of British Industry said that 67 per cent of retailers had experienced year-on-year business decline in the first half of December.

Experian said that by end December, nearly 1,137 non-food retailers closed shop, which was 21.2 per cent more compared to the year before and predicted that 440 more would go bankrupt in the next four months with a high of nearly 1,400 going bust in 2009.

Nearly 194 food retailers closed business last year, which is up by 10.9 per cent while 230 may be forced to shut shop this year, Experian said.

In the recent past a few major retailers like MFI, SCS, Dolcis, MK One, Rosebys and the century old, 815-strong retail giant Woolworths have gone bust.

Woolworths  found no buyers for their chain of stores, with Woolworths reeling under a £295 million debt leading to 30,000 job lossess. (See: British retailer Woolworths starts closing-down sale after failing to find a buyer)

The 122-year-old tea and coffee specialist, Whittard collapsed and went into administration but was acquired by Epic Private Equity from the administrators for an undisclosed sum.

According to insolvency experts, most retailers borrow the maximum during the pre Christmas period to stock up goods and pay suppliers but in the present month when most of the loans have to be repaid, as well as rent, funds to restock and pay their VAT bills, the retail sector will see a flurry of retailers going bust in the first month of 2009 itself.

Suppliers and banks who have lent their support during the festive season may not do the same in the current month or later and now after Christmas, since retailers have cash from their recent discounted sales but no stock at hand, makes them an attractive candidate for creditors to force them into administration if they think that the retailer is not viable in the long run.