Retail insolvencies rise by 56% to record high
Recent research conducted by international law firm RPC reveals a significant 56% increase in the number of retail business insolvencies over the past year. The figures rose from 1,243 in 2021/22 to 1,942, marking the highest levels observed in at least a decade.
Despite the challenges faced by the retail sector, RPC suggests that the insolvency of financially weaker retail businesses presents opportunities for stronger players. The firm highlights that these robust businesses can potentially expand their market share by strategically acquiring smaller competitors.
In 2022, there were 34 mergers and acquisitions (M&A) deals within the retail industry, and approximately one-fourth of these transactions (eight) involved the purchase of distressed businesses. Notably, larger retail groups have stepped in to save well-known retail sector insolvencies, including Made.com and Joules.
The smooth transition facilitated by pre-packs enables businesses to continue operating, making them a more attractive asset. Pre-pack administrations can be beneficial in preserving jobs, preventing negative publicity with the impact of losing goodwill and creating a higher return for creditors.
Finella Fogarty, partner and head of RPC’s restructuring and insolvency practice, said: “Challenging economic conditions over the past year have had the impact of forcing struggling retailers into insolvency.
“Retailers who are of questionable solvency may want to consider selling through a pre-pack administration if other restructuring options are unavailable to them or if they have failed. Pre-packaged deals ensure continuity and avoid the loss of goodwill and the inevitable uncertainty that comes with a trading administration.”
The current level of insolvencies amongst retailers means a continued supply of newly vacated retail property.
Fogarty explained that commercial landlords looking to fill these units may likely be more amenable to negotiating terms that are favourable to retail tenants. These may include lower rents, more generous payment terms, turnover-linked rents and greater flexibility in lease duration.
She said: “Landlords with a surplus of vacant units, particularly those outside of prime locations, will be eager to work with commercial tenants to arrive at a mutually beneficial solution. Some savvy retail operators are building a further lowering of rental costs into their business plans.”