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Retail sector saw record business failures in 2009

Business failures in the retail sector last year hit record levels not seen since the early-90s recession, according to the latest Industry Watch report by BDO LLP and the Centre for Economics and Business Research.

GENERAL MERCHANDISE

Retail sector saw record business failures in 2009

Business failures in the retail sector last year hit record levels not seen since the early-90s recession, according to the latest Industry Watch report by BDO LLP and the Centre for Economics and Business Research.

Rising unemployment and low consumer confidence that is further suppressed high street spending, meant around 3,600 retail businesses went to the wall in 2009.

Don Williams, Head of Retail at BDO LLP explained: “Failures were depressingly high in 2009 but they have hit their peak and the good news is that we will finally see a fall in 2010.”

The BDO figures indicate that retail business failures will decrease by 8% year on year in 2010. This is significantly slower than the 14% decline in business failures expected for the economy as a whole as retailers face headwinds from rising inflation, increasing mortgage costs and low earnings growth.

Although worryingly high, retail business failures in 2009 rose less than widely expected as consumer spending held up well. However, many retailers have paid the price by heavy discounting which has left profit margins painfully thin.

In future, stabilising unemployment will likely support consumer spending in 2010, driving down insolvencies with 3,335 business failures expected in 2010, reducing to 3,269 in 2011. However, wage growth is likely to remain historically low and tight consumer credit will also contribute to a sluggish decrease in business failures.

Williams concluded: “Headwinds in the form of high inflation and rising mortgage costs will mean that retailers will continue to struggle. While we expect insolvencies to decline from the record peak seen in 2009 they will stay elevated for some time.”

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