Almost half of all British fashion retailers are facing financial hardship as stiff competition, the fall in sterling and heavy discounting take their toll on the sector.
Figures from Opus Restructuring suggest that 3,991 – or 43.6 per cent – of UK fashion retailers are at risk of failure, a sharp deterioration since the same time last year, when 37.1 per cent were deemed financially vulnerable.
The real pain is being felt by mid-sized chains and thousands of smaller retailersNick Hood
Nick Hood, business risk adviser at Opus, said: “The UK fashion retail sector is under exceptional strain, with plenty of anecdotal evidence of sustained periods of discounting as consumers demand ever-lower prices and as the fall in sterling impacts their costs and profit margins.
“The failure of BHS and Austin Reed earlier this year shows what fate awaits clothing retailers who fail to invest and stay relevant to a constantly changing market.”
Using data supplied by corporate health specialists Company Watch, Opus discovered that the at-risk fashion retailers were in its “warning area” with a rating of 25 or less out of a 100.
Firms that fall within Company Watch’s warning area could face either formal insolvency or a major financial restructuring during the next three years.
Opus found that UK’s larger fashion outlets are in better shape than their thousands of smaller rivals, but even major chains are struggling to maintain profitability.
Total profits among big high street fashion names last year were £1.87 billion, down 28 per cent from two years earlier. At the same time, their borrowings rose 11.6 per cent to £3.5bn, according to numbers crunched by Opus.
Hood said: “Whilst it seems likely that the major outlets will be reporting sharply lower profits, the real pain is being felt by mid-sized chains and the thousands of smaller retailers who are facing a truly bleak future.”
Earlier this year, figures from Kantar Worldpanel showed the UK fashion market has witnessed its steepest decline in sales since 2009.
The research group said the sector saw four months of consecutive sales decline in 2016 with almost £700 million lost from the value of the market compared with last year.