Retailers 'more at risk of insolvency' than other sectors

A higher number of listed retailers are at risk of insolvency compared to other sectors, according to the latest EY Profit Warnings Report.

The research found that in 2020, 19 per cent of UK listed retail businesses issued three or more profit warnings, often considered to be a precursor to insolvency.

FTSE Travel and Leisure was the second highest with 16 per cent, while the figure was 5 per cent for all UK listed companies, and 10 per cent for UK-based companies in the FTSE 350.

EY said that typically up to one in five of these companies enter administration within 12 months.

The report also revealed that a record 53 profit warnings were issued by FTSE retailers, two more than the previous record set during the financial crisis in 2008, and representing 72 per cent of FTSE retail companies.

“Brand survival for retailers in 2020 relied on smart, new strategies around what and how to sell consumer products,” said Dr Mona Bitar, EY-parthenon partner and UK&I consumer product leader. “Understanding the consumer has never been so important and the increased penetration of the online channel, which is likely to stay beyond the pandemic, has forced retailers to accelerate improvements in their end-to-end supply chains.

She added: “As well as the challenges retailers are facing, new opportunities are opening-up as a result of the rapid scaling-up of online operations, the expansion of fulfilment capacity and establishing a presence in new markets.”

With the closure of non-essential stores across the UK, retail has been one of the hardest hit industries during the coronavirus pandemic.

Those with strong online platforms have suffered less, while many have struggled to stay afloat and been forced into administration.

Other EY research, which surveyed 300 UK retailers, identified the shift to online as the top challenge facing the industry in 2021.

The top priority this year for retailers is channeling the shift to and the cost efficiency of online.

Dr Bitar added: “UK retail must adapt further if it is to ensure long-term success. Developing a deeper understanding of evolving consumer needs and the agility to respond to them is more important than ever before. It will be pivotal to take bold, strategic decisions, such as transformation projects, simplifying unnecessary complexity within the business, and making appropriate investments. Consumers are also demanding more from brands on both purpose and sustainability – these are no longer optional extras but should be considered intrinsic to retail.”

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