Smaller retailers set to struggle as inflation continues to rise

Delayed payments and insolvencies are predicted to rise in the consumer durables retail sector this year, reveals leading trade credit insurer Atradius.

In its latest Industry Trends report on the retail sector, Atradius emphasises the importance of maintaining close working relationships with retailers, and acquiring real-time insight, as the key to navigating the next six months. Increasing economic uncertainty, slowing global GDP growth and the end of fiscal support are the primary factors behind the deteriorating outlook.

Though the UK consumer durables market recorded solid growth in 2021, and retail stores’ value added increased by 7.6%, the picture is looking less promising for 2022/23. Private consumption and retail sales are expected to decrease this year and insolvencies are likely to rise throughout 2022. Without Government support schemes, payments in the industry are likely to rise over the coming months, meaning failures could increase by up to 50% year on year.

The ongoing political situation in Europe is also exacerbating problems and causing higher inflation – forecast at 6.1% in 2022. This increase will make consumer goods more expensive, which is consequently expected to impact consumer spending. Meanwhile, the shift to digital consumption continues to put a strain on retailers, particularly in the fashion space which saw 1,382 clothing retailers close in 2021[1], the greatest number of all sector outlets. Atradius reports that spending on big-ticket items like furniture and domestic appliances has also decreased, as the cost-of-living crisis results in diminished purchasing power.

Smaller retailers that lack access to funding and favourable credit terms compared to larger players must be particularly careful, reports Atradius. Between ever-decreasing demand and strong competition from larger retailers, SMEs face serious difficulties in passing on higher input costs of commodities, energy and labour to end-customers who are already facing rising food and energy bills.

The current downhill climate for retail has led experts at Atradius to mark its performance outlook of the sector as ‘poor’, meaning credit risk in the sector is relatively high and business performance is below its long-term trend. Of all 35 countries analysed, just two – Austria and Poland – were assessed as ‘good’.

Owen Bassett, senior underwriter for Atradius UK & Ireland, said: “Though we started to see footfall recover in 2021, the retail sector has several factors working against it this year; high economic uncertainty, a slow-down of GDP growth and – in many cases – repayments of fiscal support received during the pandemic. The ongoing political situation in Europe is having a significant impact on the price of goods, supply-chain capabilities and consumer confidence. Retail businesses that were only just surviving last year will struggle to weather the storm, and it looks like insolvencies are unfortunately on the horizon for many.

“However, the British retail market proved to be adaptive during the pandemic and has since been quick to respond to changing shopping behaviours. Despite a challenging market, there are prospects for growth. And with the right protection and risk management plan in place, successful trade relationships can thrive, and the dangers of potential non-payment can be avoided.

“In today’s unpredictable and fast-moving climate, the success of consumer durables businesses is increasingly dependent upon access to up-to-date market information and the ability to adopt new strategies while expanding online business and offerings. Nowadays, trade credit insurance companies are far more than a safety net against non-payment, they work as a reliable partner, offering invaluable insight and recommendations on how to take your business forward.”